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Hunting PLC 2013 Annual Report and Accounts
Welcome to Hunting
the upstream energy
services company which
manufactures, supplies
and distributes equipment
to enable the extraction
of oil and gas.
Contents
Strategic Report
02 Highlights
04 Chairman’s Statement
Hunting and our business model
06
10
Business strategy
14 Performance indicators
18 Market review
20
Group performance
and development
Group funding and position
at year end
28
32 Outlook
34 Principal risks and uncertainties
38
Corporate and Social Responsibility
Corporate Governance
44 Board of Directors
46 Report of the Directors
50
54
78
Corporate Governance Report
Remuneration Committee Report
Audit Committee Report
Financial Statements
81
Independent Auditors’ Report
to the Members of Hunting PLC
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
84
85
86
87
88 Consolidated Statement of Cash Flows
89 Company Balance Sheet
90
Company Statement of Changes
in Equity
Company Statement of Cash Flows
Notes to the Financial Statements
91
92
150 Financial Record
Other Information
151 Shareholder Information
152 Glossary
IBC Professional Advisers
Hunting PLC 2013 Annual Report and Accounts 01
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Highlights
Robust
operational
performance
Hunting has changed the currency in which it presents its
financial statements from Sterling to US dollars. A significant
portion of the Group’s revenues, cash flows and net assets are
denominated in US dollars, and so this change is intended to
present a more representative view of the Group’s financial
performance and position.
– Revenue increased to $1,334.0m
(2012 – $1,309.0m).
– Continued global integration of past acquisitions.
– Further expansion in the US, UK and China.
– WEDGE-LOCK™ and SEAL-LOCK™ connection
products introduced in the year.
Revenue
$1,334.0m
(2012 – $1,309.0m)
Employee numbers
3,990
(2012 – 3,866)
Facilities footprint – sq footage
2.8m
(2012 – 2.7m)
Capital
investment
programmes
– 2013 capital investment $95.0m (2012 – $97.4m).
– Strategic investment into South Africa
to capture new geographic market share.
– Capital investment in 2014 is expected to be
approximately $150m.
02 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
Stable year
of profits
– Underlying profit from continuing operations
$198.5m (2012 – $202.5m).
– Reported profit from continuing operations
$137.4m (2012 – $134.6m).
– Underlying diluted earnings per share from continuing
operations 93.5 cents (2012 – 90.8 cents).
– Reported diluted earnings per share from continuing
operations 68.3 cents (2012 – 63.1 cents).
– Solid cash flows generated in year reducing net debt
to $205.8m (2012 – $266.4m).
– Final dividend proposed of 21.8 cents
(2012 – 21.3 cents), subject to approval by
shareholders.
*
Underlying – results for the year, as reported under IFRS, adjusted for amortisation and
exceptional items. Reported – results for the year under IFRS.
Underlying profit before tax
$196.1m
(2012 – $195.3m)
Reported: $135.0m (2012 – $127.4m)
Reported profit for the year from continuing operations
$106.2m
(2012 – $99.2m)
Underlying: $144.0m (2012 – $140.6m)
Underlying diluted EPS
93.5 cents
(2012 – 90.8 cents)
Reported: 68.3 cents (2012 – 63.1 cents)
Hunting PLC 2013 Annual Report and Accounts 03
Strategic ReportCorporate GovernanceFinancial StatementsOther Information
Strategic Report
Chairman’s Statement
The Group’s performance shows how
our strategy continues to be successfully
implemented with the future direction of
investment and growth clearly defined.
Richard Hunting C.B.E.
Chairman
04 Hunting PLC 2013 Annual Report and Accounts
During 2013, Hunting continued its strategy
implemented over the past few years of
internationalising its product lines
throughout our global operating hubs, while
at the same time investing in new facilities
to meet customer and product demand.
Within our main reporting segments, Well
Construction operations produced weaker
than expected results due to a challenging
Canadian market and as some customers
within the Advanced Manufacturing Group
reduced inventory levels during the year.
Our Well Completion activities had a solid
year with Hunting Titan performing strongly
with its perforating system product lines
generating strong sales combined with an
excellent performance from the Asia Pacific
region. The third of our segments, Well
Intervention, has delivered year-on-year
trading gains with Hunting Subsea
improving its results and other operations
expanding especially in the Middle East.
In the year, within our main operating
market of the United States, onshore
developments have focused on oil shale
resources, while shale gas drilling remains
subdued due to the pricing environment in
country. Offshore, the Gulf of Mexico has
continued to accelerate, leading to an
overall satisfactory performance from the
region. In Canada and Europe the operating
environment has been more challenging
due to lower activity levels, while our Asia
Pacific business has been growing rapidly
due to higher levels of drilling activity and
continued investment by the Group to
increase its regional market share.
Strategic Report
Dividend per share (cents)*
29.5
28.4
23.9
2011
2012
2013
* Declared for the year.
We are also pleased to highlight a new
format for our Annual Report and Accounts
which has been implemented following
changes to legislation. The Strategic Report
describes our business and operating model,
our business strategy and our progress on
these objectives and how this relates to our
current performance, position and
investment plans for the future. The new
remuneration reporting regulations have
also led to a revised format, with clear
sections on policy and implementation to
increase transparency.
Our business success continues to be
defined by our people and it is the hard
work of all our employees that gives us
confidence that Hunting will continue to
grow in the future. I am grateful to all our
staff for their dedication and hard work.
Richard Hunting C.B.E.
Chairman
6 March 2014
This overall operating environment has led
to underlying profits remaining broadly
unchanged, with underlying profit before
tax from continuing operations in 2013
being $196.1m (2012 – $195.3m). Reported
profit before tax from continuing operations
was $135.0m (2012 – $127.4m).
Capital investment on new and replacement
facilities was broadly maintained at $95.0m
(2012 – $97.4m), reflecting our continued
confidence in future growth. Large capital
investment programmes underway include:
a new threading and testing facility in
Houston; a final phase of expansion in
Houma, Louisiana; and a new South African
facility, where the Group sees high growth
potential.
Underlying diluted earnings per share from
continuing operations were 93.5 cents
(2012 – 90.8 cents), an increase of 3% on
the previous year. Reported diluted earnings
per share from continuing operations were
68.3 cents (2012 – 63.1 cents).
We are recommending a final dividend for
2013 of 21.8 cents per share, payable on
27 May 2014 to shareholders on the register
on 2 May 2014, giving a total of 29.5 cents
for the year, a 4% increase. Though
declared in US dollars, dividends will
continue to be paid in Sterling.
Throughout the year, the Board has
continued to enhance governance across
the organisation, with particular attention
being given to Board and senior
management succession planning within
key areas and businesses of the Group.
Hunting PLC 2013 Annual Report and Accounts 05
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Hunting and our business model
The Hunting Group comprises three separate business
divisions. The Hunting Energy Services division carries
out Hunting’s core operating activity which is the
manufacture and distribution of products, provision of
related services and equipment rental to the upstream
energy sector.
Hunting Energy Services works with international and
national oil companies as well as the major energy
service companies and independent operators. To
support these customer relationships Hunting Energy
Services operates on a global level. The division operates
across three segments which reflect the well life cycle
being Well Construction, Well Completion and Well
Intervention.
The Hunting Group also includes two non-core divisions:
Gibson Shipbrokers which is one of the world’s foremost
global ship brokers and an Exploration and Production
business focused on the Southern US and offshore Gulf
of Mexico.
Manufacturing centres
41
Well Construction
Hunting has a world leading Premium Connections platform,
which manufactures and distributes precision engineered
technologies and products for all well bores. We provide
Oil Country Tubular Goods (“OCTG”) directly to
international, national and the independent oil and gas
companies sourced from steel mills and apply proprietary
or licensed technology to these tubular products.
In order to monitor the well construction environment,
precision machined parts are manufactured together with
associated electronic components, which provide
sophisticated measurement and logging equipment.
The division is an innovator in the design, manufacture
and rental of mud motors and associated drilling tools
such as non-magnetic collars which improve drilling time
in certain geological conditions. It also machines drill rods
for trenchless drilling within the utilities industry. The
global manufacturing base is supported by a growing
network of distribution centres.
Service and distribution points
Global footprint
34
Total number of facilities
75
06 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
Well Completion
Well Intervention
This division manufactures accessories and completion
equipment for use below the well head. It provides
tailored OCTG supply and pipe management options to
the regional operator, with high specification tubing and
connections supplied to global markets. Advanced
manufacturing techniques offer an associated range of
tubular accessories designed to suit the particular
specifications of each well.
To initiate the flow of oil or gas back to the surface the
division manufactures perforating guns, energetics and
accessories. These are delivered by wireline or coiled
tubing operators to the oil and gas target, to perforate
the casing at predetermined points. Instrumentation to
monitor and switchgear to manage firing sequencing
have been developed in house. The growth of a
worldwide manufacturing capability supports the regional
distribution centres sought by the customer.
Once a well begins production, various maintenance and
intervention programmes are needed to manage it safely
and ensure it produces to its full potential, whether on
land or offshore. The wellbore is re-entered regularly so
that a wide range of remedial and enhancement work
can be completed.
The division manufactures and supplies equipment and
tools to meet these demands, often engineered to a
client’s specific needs geared to underwater or onshore
environments. The work ranges from pressure control
equipment to allow access, logging tools to monitor
integrity and intervention tools to perform specific tasks.
Hydraulic subsea equipment is also a core expertise.
This specialisation allows for the integration of an extensive
range of well intervention technologies, delivered by
wireline, slickline or coiled tubing. These can be assembled
into unique self-contained packages and are frequently
supplied to remote locations around the world.
Global footprint
Global footprint
Hunting PLC 2013 Annual Report and Accounts 07
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Hunting and our business model continued
Our business model to
achieve our strategic
objectives is:
To train and develop
our people
To operate a
decentralised
management
structure
Hunting’s broad product portfolio
demands experienced engineering and
production staff crossing many
manufacturing disciplines. Hunting has
established regional training centres in
North America and Asia Pacific to ensure
our workforce is at the forefront of new
industry developments.
The oil and gas industry is a fast paced
sector where product requirements can
operate on short lead times. Our business
leaders are empowered to react quickly to
our business needs as and when
opportunities arise.
Each business unit assesses future
customer needs and internal product
development programmes are guided by
evolving industry technologies and
practices.
To unify standards
and procedures
To maintain a
strong governance
framework
Demanding quality, safety and efficiency
procedures are embodied in our business
systems to monitor, adjust and raise our
operating standards. Unified practices are
developed and implemented at every
Hunting facility, with training of employees
at the heart of our continued commitment
and success.
The Group’s leaders and their teams
operate their businesses within a tight
framework of controls, monitored and
directed by central management functions
under direction of the Board.
08 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
Instrumentation synergy
Hunting’s Advanced Manufacturing
Group provides a unique platform to
manufacture the MWD/LWD tools that
can be integrated with their electrical
subcomponents to provide a single
piece, sub-section or whole tool with
complete integrity. The Group has
continued to develop both its product
capability and geographic coverage
with a new permanent presence in
Asia Pacific.
Hunting develops appropriate
proprietary instrumentation and rugged
detector technologies that incorporate
rigorous manufacturing and quality
procedures to provide our customers
with dependable and cost effective
logging products. New Bond Cement
tools, Nuclear and Gamma detectors as
well as radio frequency safe switch
gear for Perforating Systems has been
introduced drawing on skill sets and
resources across the Group.
“ Our strategic acquisitions of
recent years have brought the
strength of a complementary
range of high end precision
machining capabilities, coupled
with an electronic manufacturing
capability, to the worldwide
measurement-while-drilling/
logging-while-drilling (“MWD/
LWD”) market.”
Hunting PLC 2013 Annual Report and Accounts 09
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Business strategy
Hunting’s strategy is to be a key global provider of components and tools to
companies who explore, develop and produce oil and gas resources and those
primary service companies who support them. The Group seeks to deliver growth
in long-term shareholder value by progressing the following objectives:
Strategic
objective
Develop leading
proprietary
products and
services
Acquire
complementary
businesses
Capture
product sales
synergies
Strategic driver
The energy industry is a
competitive market – where
best in class products,
manufacturing know-how and
intellectual property contribute
to market leadership and
increases barriers to entry.
In some circumstances it is
more cost effective to purchase
companies who have already
developed successful products
than develop these in-house.
Hunting therefore expects to
continue to grow by
acquisition, adding products
and services that complement
the existing portfolio.
Hunting’s market leverage can
be enhanced by ensuring many
of our products are available in
all geographic regions. These
revenue based synergies are
the driving force behind our
sales efforts to maximise our
market position.
Our approach
Hunting is investing in a
portfolio of leading proprietary
technologies aligned to
increasingly complex customer
requirements.
Hunting offers enhanced
end-to-end services which
integrate into the customer
supply chain and offers
customers the high level of
quality and service which are
critical to our sector.
Our approach to acquisitions
follows a strict discipline. We
acquire businesses with a
strong technology offering and
market share, often with clearly
identified synergies with our
existing business lines to
achieve further pricing
leverage. Each acquisition is
also highly dependent on
customer needs and the nature
of new products.
We target to manufacture and
sell Hunting’s complete
product offering across our
global manufacturing hubs.
Often our technology is
developed and introduced into
the North American energy
market and then adopted into
other global regions. Our aim
is to ensure our products are
sold in every relevant
geographic region.
10 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
Underlying these objectives is a commitment to manufacture and
deliver the highest quality products and services with a reputation
for reliability and on time delivery under the Hunting brand.
Develop a
global presence
Build close
relationships with
customers and
suppliers
Market the
Hunting brand
globally
Target a high
market share for
our high value
products
Exploration and production for
oil and gas is undertaken
globally requiring an
appropriate geographic
manufacturing footprint. E&P
spend and drilling activity is
occurring in more diverse and
challenging environments. Our
industry increasingly demands
close points of presence to key
areas of exploration and
production activity.
Hunting supplies products and
tools to many tiers of the
upstream industry.
Hunting has a long established
pedigree and reputation in its
core base of operations.
The energy industry is
evolving, both in the
complexity of its activities and
regulatory environment. This
means that trusted relationships
with business partners are
critical to success.
As the business develops, the
brand is used in new markets
and exploited as acquired
businesses and product lines
are integrated into the Hunting
Group.
A key success factor in the
energy supply chain is
achieving critical mass within a
product or service line. This
can support charging a market
premium.
The commitment to our
customers is on time delivery
of quality assured products to
their locations.
Hunting is targeting further
expansion of capacity to meet
expected customer demands
providing there is a sound
business case. Hunting’s
expansion strategy includes
developing a presence in
fiscally and politically stable
countries to ensure our
investment is protected in the
long term.
Our aim is to engage closely
with our customer base,
supported by our key suppliers.
Our focus remains on building
and deepening these
relationships to maintain our
competitive edge.
We seek to acquire knowledge
and respond rapidly to local
needs by becoming an integral
part of our customers supply
chain and thereby increase our
market presence.
Hunting continues to develop
its global brand through the
standardisation of production,
quality, employment and HSE
practices throughout its
operations.
Hunting targets to be the
supplier of choice for its key
product lines and to achieve
this we aim to secure a
meaningful market share to
give our customers confidence
in our technology offering and
the ability to supply into any
global region.
Hunting PLC 2013 Annual Report and Accounts 11
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Business strategy continued
Progress and near to mid-term targets
Project
Hunting’s Premium Connections business continues to strengthen with investment in
additional manufacturing capacity. In December 2013, ground was broken for a new 110,000 square
foot facility in AmeriPort, near Houston, Texas to address onshore and offshore drilling activity.
Further consolidation of facilities is planned, once AmeriPort is commissioned in 2015.
During the year Hunting has completed the development and testing of new WEDGE-LOCK™ products,
with the first customer order being received in Q4 2013.
The Group has finalised development of a new range of SEAL-LOCK XD™ premium connection
products which are to be introduced to customers in early 2014.
A new development and test facility in Houston has been approved to develop new premium connection
product lines and accelerate certification timescales. This is expected to be commissioned in 2015.
During the year, investment continued with the expansion of Hunting Dearborn and approval of the
final phase of development at Houma, Louisiana.
Hunting Titan has commenced the manufacture of perforating guns in Canada, Mexico and China
during the year to address local customer demand and improve operating cost efficiencies.
The business has also opened new international distribution centres to supply Hunting Titan’s
product lines to the Group’s global customer base. In 2013, Hunting Titan introduced a new
ControlFire™ detonation switch system to its global customer base for use in our range
of perforating systems.
Hunting has initiated a green field investment in South Africa during the year with the appointment
of new personnel in Cape Town and has secured a site to build a new facility in-country to address
opportunities in West and East Africa where oil and gas exploration continues to accelerate. The facility
is planned to be approximately 50,000 square feet and is scheduled to be commissioned in 2015.
Hunting’s AMG business has located international sales personnel in Asia Pacific and is developing
plans for a manufacturing presence in the region.
Related Strategic Objective
Relationships with customers
and suppliers
Proprietary products
and services
Proprietary products
and services
Proprietary products
and services
Global presence
Proprietary products
and services
Product sales synergies
Product sales synergies;
relationships with customers
and suppliers; global presence
Product sales synergies;
relationships with customers
and suppliers; global presence
12 Hunting PLC 2013 Annual Report and Accounts
Project
Hunting’s Premium Connections business continues to strengthen with investment in
additional manufacturing capacity. In December 2013, ground was broken for a new 110,000 square
foot facility in AmeriPort, near Houston, Texas to address onshore and offshore drilling activity.
Further consolidation of facilities is planned, once AmeriPort is commissioned in 2015.
During the year Hunting has completed the development and testing of new WEDGE-LOCK™ products,
with the first customer order being received in Q4 2013.
The Group has finalised development of a new range of SEAL-LOCK XD™ premium connection
products which are to be introduced to customers in early 2014.
A new development and test facility in Houston has been approved to develop new premium connection
product lines and accelerate certification timescales. This is expected to be commissioned in 2015.
Related Strategic Objective
Relationships with customers
and suppliers
Proprietary products
and services
Proprietary products
and services
Proprietary products
and services
During the year, investment continued with the expansion of Hunting Dearborn and approval of the
Global presence
final phase of development at Houma, Louisiana.
Hunting Titan has commenced the manufacture of perforating guns in Canada, Mexico and China
during the year to address local customer demand and improve operating cost efficiencies.
The business has also opened new international distribution centres to supply Hunting Titan’s
product lines to the Group’s global customer base. In 2013, Hunting Titan introduced a new
ControlFire™ detonation switch system to its global customer base for use in our range
of perforating systems.
Hunting has initiated a green field investment in South Africa during the year with the appointment
of new personnel in Cape Town and has secured a site to build a new facility in-country to address
opportunities in West and East Africa where oil and gas exploration continues to accelerate. The facility
is planned to be approximately 50,000 square feet and is scheduled to be commissioned in 2015.
Hunting’s AMG business has located international sales personnel in Asia Pacific and is developing
plans for a manufacturing presence in the region.
Proprietary products
and services
Product sales synergies
Product sales synergies;
relationships with customers
and suppliers; global presence
Product sales synergies;
relationships with customers
and suppliers; global presence
Strategic Report
Connection technologies
“ New drilling techniques
and the emergence of
long lateral wellbores as
the preferred option to
extract hydrocarbons from
shale formations, has led
to the development of
new technologies to meet
these challenges.”
Hunting has an established reputation
for supplying leading edge, premium
connections that can withstand extreme
operating environments. A rigorous
development programme is pursued to
keep the Group at the forefront of the
technological curve to capture new
opportunities demanded by the
customer that enables them to access
and produce their assets.
Proprietary products appear under the
Hunting SEAL-LOCK™ banner and cover
a full range of gas tight seals. Despite a
strong order book for existing products,
new connections have recently been
made available including the extreme
duty SEAL-LOCK XD™ designed for
Canadian and Asia-Pacific conditions,
while first orders for a WEDGE-LOCK™
suite using dovetailed teeth for
horizontal production have been
secured. A new in-house connection
test centre is currently being built to
shorten qualification time.
Hunting PLC 2013 Annual Report and Accounts 13
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Performance indicators
Key Performance Indicators (“KPIs”)
KPIs are used to compare the development,
business performance and position of the Group
and its business segments. Performance
measures are looked at for continuing operations
on an underlying basis and are regularly reviewed
to ensure they remain appropriate and meaningful
monitors of the Group’s performance.
External KPIs
Industry E&P spend ($bn)
US E&P spend ($bn)
Industry footage drilled (m ft)
2013
2012
2011
682
617
556
2013
2012
2011
144
141
116
2013
2012
2011
827
802
749
Source: Barclays Global 2012–2014 E&P Spending Outlook.
Source: Barclays Global 2012–2014 E&P Spending Outlook.
Source: Spears and Associates, Inc. – Drilling and Production
Outlook, December 2013.
Estimated global exploration and production
expenditure.
Estimated US exploration and production
expenditure.
Estimated global footage drilled onshore and
offshore.
US footage drilled (m ft)
Oil price ($/barrel)
Natural gas price ($/mmBtu)
2013
2012
2011
386
369
326
Source: Spears and Associates, Inc. – Drilling and Production
Outlook, December 2013.
Estimated US footage drilled onshore and
offshore.
2013 – average spot
2012 – average spot
2011 – average spot
$97.61
$94.05
$97.00
2013 – average spot
2012 – average spot
2011 – average spot
$3.73
$2.83
$4.03
Source: Bloomberg.
Source: Bloomberg.
US dollar price per barrel based on WTI.
US dollar price per million Btu based on
Henry Hub.
14 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
Internal KPIs*
Revenue ($m)
EBITDA** ($m)
Profit from operations** ($m)
2013
2012
2011
1,334.0
1,309.0
975.1
2013
2012
2011
2013
242.8
242.9
162.5
2013
2012
2011
198.5
202.5
128.1
Revenue is earned from products and services
sold to customers from the Group’s principal
activities in continuing operations.
“EBITDA” is defined as pre-exceptional profit
from continuing operations before interest, tax,
depreciation, amortisation and impairment of
property, plant and equipment.
Profit from operations is defined as pre-
exceptional profit from continuing operations
before interest, tax, amortisation and impairment
to property, plant and equipment.
Operating margin** (%)
Profit before tax** ($m)
Diluted earnings per share** (cents)
2013
2012
2011
15
15
13
Profit from operations as a percentage
of revenue.
2013
2012
2011
196.1
195.3
127.4
2013
2012
2011
93.5
90.8
61.8
Profit before tax comprises profit from
continuing operations, less net finance expense
plus the Group’s share of associates’ post-tax
profits.
Underlying earnings from continuing operations,
attributable to ordinary shareholders, divided
by the weighted average number of ordinary
shares in issue during the year adjusted for all
potentially dilutive ordinary shares.
ROCE** (%)
Capital investment** ($m)
Free cash flow** ($m)
2013
2012
2011
12
13
15
2013
2012
2011
95.0
97.4
2013
2012
145.9
136.9
93.0
2011
62.2
Return on average capital employed measures
underlying profit from operations as a
percentage of average gross capital employed.
Gross capital employed comprises the total
equity plus net debt.
*KPIs are calculated using underlying results for the year.
**Non-GAAP measure.
Cash spend on property, plant and equipment.
Profit from continuing operations adjusted for
working capital, tax, replacement capital
investment and interest.
Hunting PLC 2013 Annual Report and Accounts 15
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Performance indicators continued
Supplementary indicators
Supplementary indicators are used to provide additional information on the development, business
performance and position of the Group and its business segments. Performance measures are
looked at for continuing operations on an underlying basis and are regularly reviewed to ensure
they remain appropriate and meaningful monitors of the Group’s performance.
Unit
2013
2012
Gross profit*
Gross margin*
Inventory days
Trade receivable days
Effective tax rate*
Dividend per share – declared in respect of the year
Closing net debt
Gearing ratio
Total Shareholder Return (three year compound)
Quality and HS&E:
Employees – end of year
Injuries to employees:
Number of recordable incidents
Incident rate – based on OSHA method
Average rig count1:
US land
US offshore
Canada
Far East, Central Asia and China
EMEA (Europe, Middle East and Africa)
Other
Total
Wells drilled1:
US land
US offshore
Canada
Far East, Central Asia and China
EMEA (Europe, Middle East and Africa)
Other
Total
Footage drilled1 (millions of feet):
US land
US offshore
Canada
Far East, Central Asia and China
EMEA (Europe, Middle East and Africa)
Other
Total
1. Source: Spears and Associates, Inc – Drilling and Production Outlook, December 2013.
* Continuing operations before amortisation and exceptional items.
16 Hunting PLC 2013 Annual Report and Accounts
$m
%
days
days
%
cents
$m
%
%
m ft
m ft
m ft
m ft
m ft
m ft
m ft
435.1
33
105
61
27
29.5
205.8
15
9.6
422.5
32
109
65
28
28.4
266.4
20
16.2
3,990
3,866
63
1.54
82
1.94
1,705
56
351
1,373
612
1,446
5,543
1,871
47
364
1,341
556
1,382
5,561
46,631
446
10,448
29,264
5,739
13,241
105,769
46,341
396
10,874
28,845
5,392
12,941
104,789
380.0
5.7
67.2
218.8
46.9
108.1
826.7
364.0
4.8
69.3
214.7
44.7
104.7
802.2
Strategic Report
“ Engineers from the
perforating systems team
at Hunting Titan in Pampa
Texas, collaborated with
colleagues from the Well
Intervention team at
Aberdeen in the UK. The
result of this has been a
new Ballistic Variball,
leveraging off the expertise
of both teams to develop,
produce and deploy gun
strings more easily and
cost effectively than
previously possible.”
Hunting PLC 2013 Annual Report and Accounts 17
Synergy in new product
development
Perforation is a widely used procedure
to blast holes through the steel casing
into an oil and gas formation to facilitate
the ability of subsequent fracking.
Predetermined points in the casing
are selected by the operator and
detonation of the explosive charges
occurs sequentially to blast the
requisite holes into the target zones.
However, the development of shale has
led to a typical profile of a vertical
wellbore turning horizontal at the
desired level to allow further lateral
drilling into the shale formation. The
potential for this drilling is as long as the
well is deep, which brings a different
set of challenges. One clear problem is
the deployment of the gun string along
the near horizontal wellbore, which
these new products address.
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Market review
“ For 2014, global E&P spending
is projected to reach a new
record of $723 billion.”
Source: Barclays
Rig Count during 2013
1600
1400
1200
1000
800
600
400
200
0
US Well Footage (m feet)
326
260
369
386
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
US Oil Rig Numbers
Canada Gas Rig Numbers
US Gas Rig Numbers
International Rig Numbers
Canada Oil Rig Numbers
Source: Baker Hughes.
2010
2011
2012
2013
18 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
Asia-Pacific
The demand for energy from emerging
countries such as China and India
continues to support offshore and onshore
development programmes. Major operators
continue to indicate a “move east” in terms
of focus and investment, with energy
service companies establishing significant
operations across the region to support
anticipated activity in the future. A
resurgence in South-East Asia for oil and
further investment in Australasia for gas
look set to service the anticipated regional
energy mix. Closer to the main population
centre, China has excellent prospects for
extracting natural gas from shale for
internal consumption.
Introduction
As a global energy products and services
provider, Hunting’s operating activities are
subject to a range of market drivers. Given
our diverse product and service offering,
each of the major operating businesses
within Hunting Energy Services are driven
by a range of macro and micro drivers
which define the overall performance and
are often regionally specific.
which has contributed to the net increase
in domestic oil production and allowed
commentators to speculate on self-
sufficiency. While this shift has occurred
onshore, activity offshore in the Gulf of
Mexico has continued to recover, with
activity leading to increased demand. The
Mexican government has also introduced
legislation to allow foreign participation in
drilling operations.
During 2013, oil prices traded at an average
of $97.61 per barrel for the WTI benchmark,
giving a relatively stable environment for
new oil drilling projects and existing
developments. The US natural gas price
in the year traded at an average of
$3.73mmBtu, which was above that of
2012, but still in a range which dampened
new investments. New international
deepwater prospects remained attractive.
Taken as a whole, industry commentators
record that capital investment across
the energy industry increased by 11%
in 2013 compared to the previous year
highlighting the need for industry
reinvestment to replace reserves as
accelerated depletion rates, global
demand and consumption continued
to increase, particularly from emerging
economies.
Regional Commentary
The Americas
Hunting Energy Services’ Well Construction
and Well Completion divisions sell
products for use in the initial drilling and
completion phases of an oil and gas well.
As such, global drilling rig activity, in
particular within North America, provides
a useful indicator of market momentum.
During 2013, while rig counts in the
United States remained relatively static,
weather events and a funding squeeze
hindered many projects in Canada, with a
consequent drop in rig numbers during the
year. The energy industry in the United
States has shifted in the last few years from
gas to oil-focused drilling programmes,
Drilling procedures continue to evolve with
operators endeavouring to minimise rig
down time by drilling multiple wells from
a single well pad – therefore a further
measure of activity is the physical number
of wells drilled. 2013 showed a 1% increase
in the number of wells drilled in the US and
a 5% increase in the footage drilled.
Europe and Middle East
Activity in the North Sea continued to be
volatile, as geopolitical influences altered
the programming and prioritisation of
activity levels in the region. In 2013, the
North Sea saw near-record rig count lows
on the UK Continental Shelf as geographic
spending patterns of the international oil
companies shifted to more promising
long-term prospects in other emerging
regions.
In the Middle East, activity continues to
increase as resource development across
the region continues. Investment continues
to grow in the established producing
countries to sustain long-term export
targets.
Africa
Investment in oil and gas activity across
sub-Sahara Africa continues to be
dominated by strong development activity
in West Africa, with increasing focus on
exploration, both onshore and offshore
in East Africa, following appraisal of
major new gas discoveries. New activity
in Southern Africa is also anticipated,
including shale related resources which
are beginning to show potential.
Hunting PLC 2013 Annual Report and Accounts 19
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Group performance
and development
We continue to make significant
investments in new manufacturing
equipment and facilities, positioning
ourselves with the capability to meet
anticipated market demand for our
extensive product portfolio.
Peter Rose
Finance Director
Dennis Proctor
Chief Executive
20 Hunting PLC 2013 Annual Report and Accounts
Introduction
2013 has seen Hunting deliver another set
of solid financial results. While a number of
our operations experienced reduced
activity levels – in particular within our
Well Construction division, which was
restrained by customers unwinding
inventory – overall our performance has
achieved a year of modest growth.
With confidence in the long-term growth of
our industry, we continue to make
significant investments in new
manufacturing equipment and facilities,
positioning ourselves with the capability to
meet anticipated market demand for our
extensive product portfolio.
Our plans remain focused on expansion and
growth with some of our key statistics
reflecting the current scale and reach of our
operations: 2.8 million square feet of
manufacturing floor space, in 41
manufacturing facilities with 1,104 machines
supported by 34 service and distribution
points. We have a physical presence in 12
countries with nearly 4,000 employees.
Overview
As expected, 2013 began slowly and was
followed by a stronger performance in the
second half, reflecting prevailing market
conditions within the industry, which gave
rise to mixed demand levels across the
geographic regions.
Activity levels in the US remained healthy
and overall footage drilled was up 5% year
on year, supported by the continued
recovery in the Gulf of Mexico. Hunting
revenues increased by 2% in line with US
drilling and completion spend. Our
Premium Connections, Titan and Subsea
businesses performed particularly well but
these results were offset by a decline in the
AMG businesses which suffered from
customer destocking.
Trading in Canada remained difficult with
adverse weather and structural supply
issues impacting the market. Despite the
expansion of Titan in Canada, revenues
from this region fell by 22% principally due
to weakness in Oil Country Tubular Goods
("OCTG") related business.
Strategic Report
Covering the
entire wellbore.
Building on a history that has
spanned one hundred years of
innovation in developing products
and techniques to enable the
successful development of
customer assets.
Change
+2%
+3%
+2%
+6%
+7%
Casing
Premium
connections
MWD/LWD
Flow couplings
Summary Group Income Statement
Underlying
2012
$m
2013
$m
Change
Reported
2012
$m
2013
$m
Continuing operations:
Revenue
EBITDA
Profit from operations
Profit before taxation
Profit for the year
Discontinued operations:
Profit for the year
Total profit for the year
Diluted EPS – continuing
1,334.0 1,309.0
242.9
202.5
195.3
140.6
242.8
198.5
196.1
144.0
–
144.0
–
140.6
–
+2% 1,334.0 1,309.0
235.6
227.7
–2% 137.4
134.6
135.0
127.4
+2% 106.2
99.2
–
15.4
121.6
108.0
207.2
APRS
Collars
Roller
reamer
Crossovers
OCTG
operations
93.5c
90.8c
+3%
68.3c
63.1c
+8%
Europe was impacted by declining rig
counts in the North Sea partly due to rig
maintenance programmes and customers
deferring major project spend into 2014,
which led to an 18% decline in revenues
in the region.
Asia Pacific continues to be a strong and
developing region for the Group and, in
2013, contributed 16% of the Group’s
revenue (2012 – 11%).
During the year, Hunting commenced
a programme of investment in Africa,
establishing a regional office and temporary
storage facilities in Cape Town, South
Africa. Local management have been
appointed and a 9 acre site was purchased
in December 2013 and a new
manufacturing facility of approximately
50,000 square feet is being designed.
Regional repair service centres in
sub-Saharan Africa are planned in the
future as activity levels in the region build.
During 2013, we have focused on initiating
projects to meet our strategic goals of
developing proprietary products,
capitalising on global sales opportunities
and expanding our geographic
manufacturing presence. These are
discussed further below. We anticipate
capital investment of approximately $150m
will be incurred in 2014.
Results from Continuing Operations
The Group generated revenue of $1,334.0m
in 2013, an increase of 2% over the prior
year. This helped support underlying
EBITDA at $242.8m which was materially
unchanged versus 2012. Underlying profit
from operations was down $4.0m, or 2%,
compared to 2012, partly due to difficult
trading conditions in the Gibson
Shipbrokers division which reported a loss
of $1.5m in the year (2012 – $1.7m profit).
The 2013 operating profit margin was
15% (2012 – 15%). Reported profit from
operations was up 2% at $137.4m due
to lower exceptional charges.
Amortisation of intangibles in 2013 at
$43.4m remained virtually unchanged.
The following items are classified as
exceptional items in 2013, consistent with
managements' internal reporting, given
their significance and in compliance with
the Group's accounting policies: PP&E
impairment and dry hole costs in
Exploration and Production of $10.5m, the
settlement of litigation costs of $2.9m,
which were treated as exceptional as these
related to pre-acquisition circumstances,
and inventory fair value adjustments of
$4.3m principally relating to the acquisition
of Titan in 2011, as this does not reflect
underlying performance. All the inventory
fair value adjustments arising on the 2011
acquisitions have now been charged
through the income statement.
Hunting PLC 2013 Annual Report and Accounts 21
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Group performance and development
continued
Well Construction
Revenue
Underlying profit from operations
Underlying operating profit margin
Capital investment
Average employees
Year end employees
2013
2012
Change
–14%
–19%
$m
$m
%
$m
380.9
58.6
15
43.3
1,186
1,121
442.7
72.5
16
38.1
1,219
1,254
Net finance costs have reduced from $8.7m
in 2012 to $2.8m in 2013. This reduction
was mainly due to foreign exchange gains
in the year and reductions in bank interest
due to lower average debt levels and lower
interest rates.
Underlying profit before tax at $196.1m was
marginally up on 2012 at $195.3m. The
underlying tax charge for the year was
$52.1m (2012 – $54.7m), resulting in an
underlying profit for the year of $144.0m
(2012 – $140.6m). The Group’s underlying
tax rate for 2013 was lower than expected
at 27% (2012 – 28%). The rate of tax
reflects the weighting of profits in lower tax
jurisdictions, particularly Singapore where
corporate tax rates are currently 17%,
together with a reduced UK corporate tax
rate. The Group’s effective tax rate for 2014
is expected to remain at 27%; however, the
actual rate will depend on the regional mix
of profits. On a reported basis, profit before
tax at $135.0m was 6% above 2012 and
reported profit for the year up 7% at
$106.2m.
Underlying diluted EPS increased by 3% to
93.5 cents (2012 – 90.8 cents) and reported
diluted EPS increased by 8% to 68.3 cents
(2012 – 63.1 cents).
Results from Discontinued Operations
The reported profit from discontinued
operations was $15.4m (2012 – $108.0m)
with profits in both years derived mainly
from exceptional items relating to provision
releases on the successful resolution of tax
affairs in Canada arising from the sale of
Gibson Energy in 2008. There are no
provisions remaining on the balance sheet
at 31 December 2013 for tax amounts
payable in respect of this sale.
Segmental Trading Review
Hunting Energy Services
Hunting Energy Services comprises the
Well Construction, Well Completion and
Well Intervention segments. In 2013
Hunting Energy Services reported revenues
of $1,285.6m compared to $1,257.6m in
2012 and underlying profit from operations
of $198.8m compared to $199.9m in 2012.
Well Construction
The Well Construction division includes
Hunting’s Premium Connections, Drilling
Tools, OCTG, Trenchless, Advanced
Manufacturing Group and Hunting
Specialty business platforms. In 2013
revenue declined by 14% to $380.9m
largely due to destocking in the Electronics
business and adverse trading in Canada;
however, margins were maintained largely
due to cost reduction initiatives, including
staff reductions of 133 during the year.
Premium Connections
Hunting’s Premium Connections business
platform is driven by its SEAL-LOCK™ and
WEDGE-LOCK™ connection product lines.
With the increase in activity in the Gulf of
Mexico, where the Group has supplied
products to key exploration projects in
the region, the business has reported
another strong result supported by demand
within the oil shale regions across North
America. The business has also seen a
notable increase in global demand for its
product lines.
During the year product development has
focused on SEAL-LOCK XD™ product lines
for application to high pressure/high
temperature environments, which has
now concluded testing and certification.
These will be introduced to the market
during 2014.
To meet the high demand for our Premium
Connections products, the Group has
approved construction of a $43.0m,
Thru-tubing
Pup joints
Perforating systems
Blast joints
22 Hunting PLC 2013 Annual Report and Accounts
Slickline/E-line tools
Variball running system
Strategic Report
110,000 square foot facility near Houston,
Texas and a new $11.0m testing and
certification facility, enabling new products
to be brought to market more rapidly. The
facility is expected to be completed in 2015
and $11.1m of capital has been invested,
primarily related to land and design fees.
The outlook for this business remains positive
as new rigs are commissioned globally.
Drilling Tools
Hunting’s Drilling Tools business delivered
a year of steady growth on maintained
margins. Activity levels have been driven by
drilling programmes in the oil-focused shale
basins which have been a major contributor
to the increase in total US oil production.
The business has also been successful in
capturing further market share within the
oil shale sector where new customers have
started to use Hunting’s mud motor fleet.
During 2013, the Group invested $21.7m
in new drilling tools and spare parts which
included the introduction of a 7” motor
into its fleet. This additional product line
complements the more standard 5” motors
and enabled new business opportunities to
be secured in the Eagle Ford and Permian
basins where shale drilling continues to
accelerate.
The outlook for this business remains
positive as the focus on drilling in the US
remains on oil shales.
OCTG
Hunting’s OCTG business had a weak year,
with revenue down $25.7m driven by the
adverse weather conditions in Canada,
difficult market conditions generally and
increased competition.
Hunting’s Trenchless
Hunting's Trenchless business manufactures
drill stems and operates through a third
party distribution network to access its
customers. During 2013, the business
reported satisfactory results despite a
competitive environment.
Advanced Manufacturing Group (”AMG”)
The AMG comprises the Hunting
Electronics, Hunting Dearborn and Hunting
Doffing operations.
Hunting Electronics reported a significant
reduction in activity levels with a $27.9m
decline in year-on-year revenues as
customers reduced inventory levels. In
response to this, the business reduced the
headcount of its US operations by some
30% over the year, while at the same time
exploring and securing international growth
opportunities through Hunting’s global
sales and manufacturing hubs, particularly
in the Asia Pacific region.
Within Hunting Dearborn, the business
reported flat activity levels during the year
as customers unwound inventory levels.
While the business reported unchanged
demand for its oil and gas focused products,
the business benefited from stronger sales of
its aviation product lines. The business is
commencing an $18.8m expansion of its
facility to increase capacity and reduce
customer lead times as the forward order
book improves.
Customer interest in AMG’s single source
MWD/LWD product offering has been
encouraging, with international sales efforts
increasing as personnel were added to
Hunting’s regional hubs. The outlook for
AMG is positive, with order books
increasing into 2014 as activity levels
build internationally.
Hunting Specialty
Hunting Specialty manufactures drill pipe
screens and other MWD/LWD tool
components. The business delivered an
operating profit in line with 2012, despite a
slow start to the year, by broadening its
customer base and has started to develop
international sales for its products through
Hunting’s international network. The
business has worked closely with Hunting
Drilling Tools to further develop customer
interest in Hunting’s broad product range,
generating new customers and sales in
North America.
Non-magnetic drill collars
Mud motors
Hunting PLC 2013 Annual Report and Accounts 23
Strategic ReportCorporate GovernanceFinancial StatementsOther Information
Strategic Report
Group performance and development
continued
Well Completion
Revenue
Underlying profit from operations
Underlying operating profit margin
Capital investment
Average employees
Year end employees
2013
2012
Change
+10%
+7%
$m
$m
%
$m
796.1
124.5
16
31.2
2,102
2,197
725.1
116.6
16
16.4
1,954
1,985
Well Completion
The Well Completion segment incorporates
Hunting Titan, Manufacturing and
Accessories and Hunting’s international
completion businesses. In 2013, underlying
profit from continuing operations increased
7% from $116.6m in 2012 to $124.5m in
2013 with margins maintained. Employee
numbers increased by more than 200
during the year with the increase focused in
the high growth Titan and Asia Pacific
businesses.
Hunting Titan
Hunting Titan comprises three business
lines: Perforating – which includes Hunting’s
suite of perforating gun systems; Instruments
– which includes detonation switches and
gamma ray detection tools; and Energetics
– which includes Hunting’s range of charges
and jet-cutting product lines.
During 2013 Hunting Titan reported record
results, with revenues up nearly 16% driven
by continued demand in the oil-focused
shale basins and the ongoing international
growth. A tiered pricing structure was also
introduced in the year which improved our
competitive position.
During 2013, Hunting Titan broadened its
manufacturing capabilities commencing
production at Hunting’s Canadian, Mexican
and Chinese facilities to service demand in
these geographic regions. In May 2013,
Hunting Titan acquired XL Perforating
Partnership (“XLPP”) providing a
distribution network in Western Canada
which increased Hunting Titan’s exposure
to activities in the heavy oil segment of the
market. The acquisition has added six
distribution centres. Hunting Titan also
opened distribution centres in Oklahoma
and Hobbs in the US as well as Jakarta and
Aberdeen as further expansion into
international markets continued. In parallel
to these expansion activities, Hunting
Titan’s US manufacturing facilities
continued its drive to implement lean
manufacturing processes into its operations
which has resulted in a number of
productivity gains.
Hunting Titan has introduced a number of
new product lines in the year, including a
range of perforating guns suitable for heavy
oil developments, a new ControlFire™
detonation switch system and new jet
cutters.
Hunting Titan’s business model is focused
on manufacturing its products at a number
of core locations and selling these products
through its network of distribution centres
to meet customer requirements. The growth
strategy of the business is to internationalise
its footprint by leveraging Hunting’s global
network of facilities.
Manufacturing and Accessories
Hunting’s Manufacturing and Accessories
business incorporates product lines which
are used in the completion phase of an oil
and gas well. Hunting’s US facilities have
been supported by ongoing investment in
the oil-focused shale regions and strong
activity levels in the deep water Gulf of
Mexico. Within Canada, Hunting’s
operations have been adversely affected by
lower rig counts and poor weather
conditions in a number of key basins which
has impacted utilisation levels.
The Board of Hunting has approved the
final expansion phase of the facility in
Houma, Louisiana for $36.0m which will
support the increasing activity in the Gulf of
Mexico and developing international
demand. The facility on completion will be
approximately 280,000 manufacturing
square feet.
International Completion Activities
The strategy for Hunting’s global
completion operations is focused on
ensuring the Group has an operational
presence in its key geographic hubs.
Year-on-year overall revenues are up 10%
and margins have improved.
In Europe, activity has been impacted by
low rig count levels in the North Sea, with
some of our key customers deferring a
number of major projects into 2014. The
outlook for this region is improving as
activity levels recover.
Hunting’s Asia Pacific operations have
reported excellent results in the year as
drilling activity accelerated in the region.
While a slowing in momentum was noted
during Q4 2013, due to the availability of
rigs, the business is anticipating new
opportunities within the region. Hunting’s
facility in Wuxi, China commenced the
manufacturing of Titan perforating guns in
the year and is now supplying products to
Hunting’s distribution centre in Jakarta.
New sales offices have also been opened in
Perth, Australia, with plans to establish a
presence in India and Norway underway.
24 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
“ Wireline operations have a key role to play in well
intervention. Tools and equipment are run into the well
using a cable to perform tasks such as reservoir evaluation,
stimulation or tool recovery. Pressure control is essential,
as the wireline passes through a valve containing a series
of rams designed to close over the cable in the case of
an emergency.”
Pressure control
For wireline operations the integrity of
the valve is paramount to safely manage
the pressure differentials as the well bore
is entered. A rugged design for field work
and ease of use by the operator are the
desired outcomes. In order to meet these
requirements Hunting’s engineers are
constantly seeking to refine the product
range to simplify it and make it more
efficient.
Born from a specific customer demand,
the engineering team designed the
Eziclose hydraulic actuator, which also
allows rams to be manually closed over
the wireline at any well pressure up to
10,000psi. Retro-fittable to the existing
Hunting wireline valve body design,
finite element analysis was used to lower
weight and reduce parts without
compromising safety.
Eziclose quad valve customised for optional manual
operation.
Hunting PLC 2013 Annual Report and Accounts 25
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Gibson Shipbrokers
Gibson is a leading international shipbroker
and is expanding its global presence in line
with the shifting markets in the oil, gas and
bulk shipping sectors. Gibson has a strong
focus on crude and tanker chartering, clean
products, vegoil, dry bulk, LPG and
offshore activities.
With the shipping sector enduring an
uninterrupted and unprecedented
downturn since 2009, there was little
expectation that 2013 would offer any
significant improvement. Fixing volumes for
2013 were in line with those for 2012,
however the 2013 revenue of $40.4m (2012
– $43.6m) was down with rates continuing
to suffer from an oversupply in the shipping
market. Given the relatively fixed cost
nature of the business, this decline gave rise
to a loss for the year of $1.5m (2012 – profit
$1.7m).
Gibson continues to expand its core
shipbroking activities despite difficult
trading conditions. The business targets to
provide an international, premium
shipbroking service and is well positioned
to benefit from future market recovery.
Strategic Report
Group performance and development
continued
Well Intervention
Revenue
Underlying profit from operations
Underlying operating profit margin
Capital investment
Average employees
Year end employees
Well Intervention
The Well Intervention division includes the
Hunting Subsea and Well Intervention
businesses. In 2013, underlying profit from
continuing operations increased from
$10.8m in 2012 to $15.7m. The
year-on-year reduction in capital
investment reflects the completion of
Houma phase 1 in 2012.
Hunting Subsea
Hunting Subsea has resolved certification
issues, which followed the Deepwater
Horizon incident in 2010, and this, coupled
with increased activity in the Gulf of
Mexico, has led to a year of strong revenue
growth. Sales of hydraulic couplings have
been particularly strong during the year as
key customers increased their volumes,
supported by demand for Subsea valve
product lines.
The business has also delivered growth into
international markets, leading to new sales
appointments in Europe to capture
opportunities in the North Sea.
Well Intervention
Well Intervention activities, which includes
the Thru-Tubing product lines, has seen
good demand in the Middle East and Asia
Pacific during the year, with growth
initiatives pursued in Thailand where a new
facility was opened in June 2013.
Hunting’s range of pressure control systems
have continued to gain market traction
during the year with robust sales
throughout the Middle East and increasingly
into North America.
2013
2012
Change
+21%
+45%
$m
$m
%
$m
108.6
15.7
14
9.2
432
438
89.8
10.8
12
33.8
359
398
Exploration and Production
Hunting’s exploration and production
division has oil and natural gas well
investments mainly in the Southern US and
shallow water offshore Gulf of Mexico,
holding equity interests in 48 producing
properties. On a Barrel of Oil Equivalent
(“BOE”) basis, production in the year was
128,000 barrels (2012 – 131,000 barrels),
with reserves at 31 December 2013 being
1.1m barrels (2012 – 1.1m barrels). The
business reported a profit from operations,
before exceptional items, of $1.2m (2012 –
$0.9m).
During 2013 the business, as contractually
committed, participated in drilling eight oil
and gas wells. This resulted in five
successful outcomes and three wells, which
were deemed non-commercial resulting in
dry hole costs of $2.6m (2012 – $3.2m),
which has been shown as an exceptional
item.
Following a year-end valuation of reserves,
which requires individual oil and gas
properties to be impaired when the
estimated realisable value is less than the
book value based on future production and
commodity prices, the business has taken
an impairment charge of $7.9m (2012 –
$8.2m), which has been shown as an
exceptional item, reflecting a reduction in
reserve estimates, higher retirement
obligation cost estimates and a higher
discount rate.
26 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
2013
$m
242.8
(20.3)
(6.3)
(20.4)
(45.0)
(4.9)
145.9
(50.0)
(45.8)
(10.7)
17.7
4.1
(0.6)
2012
$m
242.9
(29.9)
(8.4)
(23.9)
(42.6)
(1.2)
136.9
(54.8)
(38.3)
(3.5)
27.2
4.0
1.5
60.6
73.0
Payments for the purchase of subsidiaries
included $8.7m for the acquisition of XLPP
by Hunting Titan, and earn-out payments
related to the acquisitions made in 2011.
During 2013, a $17.7m repayment of tax
and interest was received from the
Canadian tax authorities on the resolution
of disputes related to Gibson Energy, a
division sold in 2008.
After other cash flows of $4.1m, offset by
foreign exchange movements of $0.6m, net
debt reduced by $60.6m during 2013.
Summary Group Cash Flow
EBITDA before amortisation and exceptional items
Working capital movements
Net interest paid and bank fees
Tax paid
Replacement capital investment
Other operating cash and non-cash movements
Free cash flow
Expansion capital investment
Dividends to equity holders and non-controlling interests
Purchase of subsidiaries
Tax indemnity refunds
Other
Foreign exchange
Reduction in net debt in the year
Cash Flow
EBITDA was materially unchanged versus
2012. Working capital movements during
2013 gave rise to an outflow of $20.3m
largely driven by trade payables with the
UK, front-loading inventory purchases in
the first half of the year. Trade receivable
positions also reduced with collection
performance improving.
Net interest and bank fees paid reduced by
$2.1m due to lower average debt levels and
resulting reductions in the interest charged
on our revolving credit facility. Tax paid
reduced by $3.5m through the use of
capital losses in the UK.
Replacement capital investment at $45.0m
was broadly in line with 2012. The key
components were $16.3m on replacement
drilling tools and $9.5m in Exploration and
Production, with the residual of $19.2m
largely being machinery replacement.
As a result of the above, free cash flow
increased by 7% from $136.9m in 2012 to
$145.9m in 2013.
Expansion capital investment in the year of
$50.0m was $4.8m lower than 2012 with
the initiation of a number of key capital
projects occurring in the second half.
Investment included $11.1m for AmeriPort
and the new testing facility, $5.4m on new
drilling tools and $5.1m for South Africa.
Total capital investment for 2013 was
$95.0m, a decrease of $2.4m. Capital
investment in 2014 is expected to be
approximately $150m.
Total dividend payments of $45.8m were
paid, with $3.3m of this relating to
non-controlling interests. The $42.5m paid
to equity shareholders reflected the
payment of the final dividend for 2012 of
21.3 cents (14.0 pence) and the 2013
interim dividend of 7.7 cents (4.75 pence).
All subsequent dividends, including the
2013 final dividend will be declared in
cents. The final dividend for 2013 is
proposed at 21.8 cents, and, if approved by
shareholders, is expected to result in an
outflow of $32m.
Hunting PLC 2013 Annual Report and Accounts 27
Strategic ReportCorporate GovernanceFinancial StatementsOther Information
Strategic Report
Group funding and
position at year end
The Group’s financial position remains
robust with adequate funding facilities
in place and a strong balance sheet –
net assets in excess of $1.4 billion.
Financial Capital Management
2013 has been a year of developing and
integrating the businesses acquired towards
the end of 2011. Market conditions for
companies in the oil and gas sector have
been relatively stable at a global level, albeit
with regional variations. Notwithstanding
these neutral external factors, net debt has
reduced significantly in the year to $205.8m
(2012 – $266.4m), with gearing falling to
15% at 31 December 2013 (2012 – 20%)
while capital investment has been
maintained at recent historical levels.
The Group’s financial position remains
robust, with total credit facilities of
$688.8m in place (2012 – $676.5m) of
which $621.1m or £375.0m (2012 –
$609.6m or £375.0m) is committed. The
committed facility is a £375.0m Sterling
denominated multi-currency revolving
credit facility (“RCF”) from a syndicate of
ten banks which extends to 5 August 2016.
Further details regarding the facility can be
found in note 29. Given the Group’s
treasury management is now US dollar
oriented it is expected that future facilities
will be denominated in US dollars.
The ratio of net debt to EBITDA permitted
under the RCF must not exceed a maximum
of 3 times. EBITDA must also cover relevant
finance charges by a minimum of 4 times. At
31 December 2013 both these covenants
were comfortably met.
Management’s judgement is that the level
of headroom remaining is adequate to
provide ongoing flexibility and to support
the investment in key projects outlined in
our strategic review.
Return on average capital employed is a
KPI management use to assess business
unit performance. The Group’s underlying
return on average capital employed has
reduced to around 12% (2012 – 13%)
reflecting the ongoing capital investment
programme on expansion projects, which
do not provide an immediate financial
return. Rates of capital return are expected
to increase as these expansion projects
become operational and contribute to
Group results.
The Board considers each ordinary
dividend proposed based on the merits of
the information available to it at the time.
Consideration is given to the financial
projections of business performance and
capital investment needs, together with
feedback from shareholder discussions.
The final dividend for 2013, and future
dividends, will now be declared in cents.
The Group operates a centralised treasury
function with policies and procedures
approved by the Board. These cover
funding, banking relationships, foreign
currency, interest rate exposures, cash
management and the investment of surplus
cash. Further detail on financial risks is
provided within note 29.
The Group operates on a global basis and
hence results originate in a number of
currencies. The US dollar is the most
significant functional currency used;
however, where this is not the case the
Group is subject to the effects of foreign
exchange rate fluctuations with respect to
currency conversions. Currency exposure
on the balance sheet is, where practical,
reduced by financing assets with
borrowings in the same currency. Spot and
forward foreign exchange contracts are
used to cover the net exposure of purchases
and sales in non-domestic currencies.
28 Hunting PLC 2013 Annual Report and Accounts
Gearing
15%
(2012 – 20%)
ROCE
12%
(2012 – 13%)
“ Land has been purchased and
construction scheduled for a
new OCTG facility within the
AmeriPort industrial complex,
close to Houston, Texas.”
“ The return of activity to
the Gulf of Mexico has
increased production
demands on Hunting’s
existing facilities creating
the need for new
manufacturing capacity.”
Strategic Report
Capacity realisation
New
97
acres
New
422,000
square feet of
manufacturing
At Houma in Louisiana the final phase of
the construction project at the 311 facility
is well underway to expand
manufacturing capacity to nearly 280,000
square feet. Rising demand for Hunting
products and constraints on existing
facilities led to building a new facility on
this 57-acre site in 2012. This final phase is
due for completion in the second half of
2014, together with the expansion of the
deep water storage facility on the same
site to 32,000 square feet.
Meanwhile, along the coast at AmeriPort
in Texas, a further 110,000 square foot
tubular threading facility is being built on
a 40-acre site to produce full length
Hunting premium connection products.
As well as being set up as a state-of-the
art, high capacity manufacturer, the
facility will include a testing and
certification unit to accelerate
development and deployment of
proprietary Hunting products.
Hunting PLC 2013 Annual Report and Accounts 29
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Group funding and
position at year end
continued
Capital Employed $m
Balance Sheet
1,599.1
1,620.6
1,489.3
2011
2012
2013
Net Assets $m
Goodwill
Other intangible assets
Property, plant and equipment
Working capital
Taxation (current and deferred)
Provisions
Other net assets
Capital employed
Net debt
Net assets
Non-controlling interests
1,414.8
Equity attributable to owners of the parent
2013
$m
495.2
263.0
431.8
467.6
(48.7)
(33.4)
45.1
2012
$m
495.0
301.1
403.8
435.2
(40.1)
(48.0)
52.1
1,620.6 1,599.1
(266.4)
(205.8)
1,414.8 1,332.7
(29.7)
(30.9)
1,383.9 1,303.0
1,332.7
1,146.9
2011
2012
2013
Tax balances have increased by $8.6m to
$48.7m at 31 December 2013. The increase
mainly relates to increased deferred tax
liabilities on pensions.
Provisions have reduced by $14.6m during
the year primarily due to the resolution of a
Canadian tax dispute as noted earlier.
Overall, capital employed in the Group has
remained relatively steady at $1,620.6m
(2012 – $1,599.1m).
Thanks to strong cash generation the overall
cash inflow in 2013 of $60.6m has reduced
net debt to $205.8m at 31 December 2013.
Net assets at 31 December 2013 were
$1,414.8m, which, after non-controlling
interests of $30.9m, result in equity
shareholders’ funds of $1,383.9m. This is an
increase of $80.9m over 31 December
2012, which reflects the retained result for
the year of $117.9m and other items of
$5.5m offset by $42.5m dividend
payments.
Goodwill has increased marginally over
2012 following the XLPP acquisition. The
Group has conducted its impairment
reviews and has concluded that there is
appropriate justification to carry this asset
based on future cash projections. All cash
generating units carrying goodwill have
sufficient headroom to cover reasonably
foreseeable downside cases.
Other intangible assets have reduced by
$38.1m, with the amortisation expense for
the year of $43.4m being offset by the
capitalisation of technology and software
development costs of $5.0m.
Property, plant and equipment has
increased by $28.0m. Additions of $95.0m
together with $1.7m of PPE acquired with
XLPP were offset by $44.3m of
depreciation, $10.5m impairment in
Exploration and Production, net book value
on disposals of $13.0m and other
movements of $0.9m.
Working capital has increased by $32.4m
since 2012 principally due to a reduction in
trade and other payables of $35.9m, with
the UK having front loaded inventory
purchases in the first half of the year.
Inventories report a small decrease of
$4.8m to end the year at $386.3m.
30 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
“ Hunting’s global footprint
provides a foundation to
roll-out new regional
product manufacturing.”
Manufacturing synergies
Using established facilities around the
world, it has been possible to open new
manufacturing cells for new product lines
for businesses that have been acquired in
the last few years. A strategy has been
pursued to internationalise those lines
that would be commercially attractive
because of a local manufacturing base
and where pure export would severely
limit the market opportunity.
Perforating gun systems were identified
as leading candidates for this campaign.
Following extensive training and
reconfigured plant, perforating guns are
now manufactured at Monterrey in
Mexico, Calgary in Canada and at Wuxi
in China, with further opportunities
being explored. Hunting QA systems
are standardised at every facility which
also gives flexibility to the production
mix to satisfy peaks in regional demand.
Hunting PLC 2013 Annual Report and Accounts 31
Strategic ReportCorporate GovernanceFinancial StatementsOther Information
Strategic Report
Outlook
Global demand for oil and gas is forecast
to rise with attendant capital expenditure to
fulfil that requirement.
Markets for Hunting are more often
customer and region specific. While the
macro elements of the oil and gas industry
are important, the Group’s attention to
historical customers and their needs plays a
more important role in our view of future
growth. Granted, our customers represent
some of the largest E & P companies and
major service companies, but individual
contracts and activity levels vary year to
year. Accordingly, we work closely with
their management to assess their
expectations, often 2–3 years forward.
Certainly oil prices, energy demand, global
rig count, E & P spending growth and
industry forecasts are favourable and
strongly underpin our confidence in capital
investment and global expansion for 2014.
Gas and oil prices are key drivers to drilling
activity and equipment demand. While the
North American natural gas supply gap
narrowed and drove gas prices higher in
the last quarter of 2013, forecasts suggest
more pricing pressure throughout 2014.
Accordingly, exports are critical for growth
in US production, which may not occur
until 2020. Gas directed drilling appears to
have found some stability on the downside.
Having fallen nearly 50% in 2012, the gas
rig count fell “only” 13% in 2013, currently
just below 400 rigs. Globally, natural gas
demand is expected to grow annually
at a rate of 1.8% driven by China and India
as well as Latin America and other gas
poor countries.
Oil prices averaged $98 per barrel in 2013,
$4 per barrel more than the average in
2012. Forecasts for 2014 range from $93 to
$99 per barrel. The US oil rig count has
been relatively unchanged since May 2012,
averaging 1,380 rigs. Globally, oil
consumption is forecast to reach 91.59
million barrels per day – a 1% increase over
2013. Supply disruptions present
considerable uncertainty over the forecast
period because issues underpinning the
disruptions in most countries remain
unresolved.
Given the above, the US industry sentiment
reflects US capital investment of nearly
$160 billion for 2014, an 11% increase over
2013. Producers onshore are utilising more
geology specific drilling and completion
equipment resulting in longer well bores
and specific supplier products. Further, the
US Gulf of Mexico activity is anticipating 57
rigs operating, a 5% increase. This growth is
the basis for our increased capital
investment on additional facilities, but
unfortunately, will not be available until late
in the year. Incremental machine capacity,
coupled with more efficient operations will
soften the delay and enable the Company to
capture the expected increase in business.
In Canada, unusual flooding occurred
throughout the Alberta province, delaying
and, in some cases, cancelling drilling
32 Hunting PLC 2013 Annual Report and Accounts
programmes. Calgary, home to most
operators’ headquarters, was disrupted by
the flood for several weeks. Coupled with
high inventories, our Canadian operations
saw a record profit year in 2012 turn to a
loss for 2013. Operations have returned to
higher levels and 2014 should return to
profitability.
The North Sea, another disappointment for
2013, started the year with 22 rigs and
expectations of excellent activity. With
contracts to provide support for nine of
these rigs, the facilities were prepared for
high production levels and supported by
higher inventories. The rig activity declined
to 10, with exploration wells drilled at the
lowest level since 1965, and profits fell to
half of expectations. Drilling activity levels
have recovered and expectations are for a
return to 2012 results.
Our Middle East operations have the
highest potential for best percentage growth
in future months and years. The region
contains and continues to develop some of
the world’s largest “giant” fields – those
fields with a recoverable reserve of 500
MMboe or more. A new joint venture in
Saudi Arabia and a licence agreement with
the new Arcelor Mittal seamless mill in
Saudi Arabia will commence and should
have a significant impact on business
development.
Outside of the US, the Asia Pacific region
continues to be the largest and fastest
growing region in the Group. Past
investment has performed extremely well,
with expectations to continue as more
capacity, new sales offices and distribution
points are added.
Regardless of the euphoria and media
attention over shale oil and gas, future oil
and gas supply will continue to be
dominated by conventional reserves found
mostly offshore. The International Energy
Oil price average 2013
Gas price average 2013
$98per barrel
$3.73mmBtu
Facilities are being set up to manufacture Hunting’s
complete product offering, enhancing flexibility and
speed of product delivery.
Strategic Report
Agency (lEA) predicts that unconventional
oil will contribute only 13% of global
supply and unconventional gas 26% by
2035. Hunting’s variety of product lines can
be utilised in all types of reservoirs both
onshore and offshore. Accordingly, our
efforts extend far beyond the US shale plays
and the Gulf of Mexico despite the volume
of wells drilled and the attention received.
Following years of acquisitions and facility
growth, the Group has and will continue to
provide its vast product offering within
each region. Perforating equipment is now
produced or distributed in each location.
Premium connections are produced or
repaired throughout the Group’s facilities.
Pressure control, wire line tools, drilling
tools, OCTG and accessories are produced
at facilities closest to the operator’s drilling
activity. Our goal to provide the customer
with any product from any of our 41
manufacturing plants or 34 distribution
centres having the identical quality
assurance is maturing but will be further
enhanced in 2014.
Regional growth has and will continue to
be important in order to service our global
customers. Equally important is the
advancement and new developments of
our product line.
Looking at the profit from operations
generated by a number of our key
business units:
– Premium Connections – 2013 year on
year growth was flat due to specific
customer project delays. High single
digit growth for 2014.
– Drilling Tools – Up 4% year on year
from increased utilisation in various
shale plays in the US. Low double digit
growth for 2014 from delivery of
additional tools.
– North American OCTG – Canada down
86% and US down 28%, but both
regions expect double digit
improvements in 2014.
– International Completion Activities –
Results varied during 2013 dependent
on regional activities, with Asia Pacific
up 60% and North Sea down 27%. In
2014, both regions expect mid to high
single digit growth.
– AMG – Excluding the Electronics
division, down 22% primarily due to
timing of deliveries slipping into 2014.
Low double digit growth for 2014.
– Electronics – Significantly down 60% as
customers destocked from an excessive
pre-purchase of product in 2012.
Modest improvement in 2014 as
customers continue working off
inventory.
– Perforating Products – Strong 2013 year
on year growth due to US market share
capture and establishment of
international manufacturing and
distribution facilities. High, single digit
growth is expected in 2014.
– US Manufacturing – No change year on
year with low double digit growth
expected in 2014.
– Subsea – Excellent recovery of 202%
following recertification issues in 2012
with expectations for additional 50%+
growth in 2014.
Your company has and will continue to
build a unique business that is highly
focused on the well bore within the oil and
gas industry. Drilling and completion
characteristics continue to be more
complex in high pressure, high temperature
deviated environments requiring
sophisticated components. People skills,
attitudes, quality conformance and
manufacturing competence exist in Hunting
to meet the demands of the industry.
Growth is our passion, not just a financial
necessity. The assets are well placed and
opportunities exist to accomplish our goals
in the coming year.
Hunting PLC 2013 Annual Report and Accounts 33
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Principal risks and uncertainties
The Group is exposed to
a wide variety of commercial,
operational and financial risks
and the Board has established
an internal control process to
manage, monitor and review
these risks which is described
in more detail on page 80.
Group risks are formally
reviewed by the Board at least
three times a year and are
discussed at every Board
meeting.
The Group’s principal risks are
those that the Board considers
would have a major impact on
the operational, financial and
reported performance of the
business and are therefore of
heightened importance.
Risks Specific to the Nature of Hunting Group Businesses
Product Quality and
Reliability
Raw Material
Commodity Prices
The Group has an established reputation
for producing high quality products
capable of withstanding high pressure,
high temperature environments.
Hunting is exposed to the influence of oil
and gas prices as the supply and demand
for energy is a key driver of demand for
Hunting’s products.
A failure of any one of these components
could adversely impact the Group’s
reputation and demand for the Group’s
entire range of products and services.
Controls and Actions
Quality assurance standards are monitored,
measured and regulated within the Group
under the authority of a Quality Assurance
Director, who reports directly to the Chief
Executive.
Movement in Year
The risk of poor product quality or
reliability has remained relatively
unchanged during the year with no
significant issues raised by the Group’s
customers or during the Board’s internal
monitoring process.
Oil and gas exploration companies may
reduce or curtail operations if prices
become or are expected to become
uneconomical and therefore continuation
of prices above these levels is critical to the
industry and the financial viability of the
Hunting Group.
Controls and Actions
Working capital and in particular inventory
levels are closely managed to ensure the
Group maintains a sufficient adaptability to
meet changes in demand.
The Group maintains three operating
platforms: the Well Construction and Well
Completion segments expect to benefit
when exploration companies are active
in their drilling operations and the Well
Intervention segment benefits when wells
are subject to maintenance or require
testing or repair work.
Movement in Year
With the Group’s continuing strategy of
product expansion the Board believes
that the likelihood of future price changes
affecting a major financial impact on the
Group remains broadly unchanged.
34 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
Acquisitions and
Capital Investment
Relationships with Key
Customers
Shale Drilling
Acquisitions and capital investment
form the basis of the Group’s strategy of
expansion and development. Such activity
incurs the potential for business disruption,
management distraction, interruption to IT
systems and the consequent poor financial
returns that would emanate from these
issues if not controlled properly.
Controls and Actions
The Board reviews and challenges each
potential acquisition prior to approval and
frequently engages consultants to provide
expert analysis of the key issues.
The success of each acquisition is assessed
through a post acquisition appraisal process
that provides a learning platform for future
business combinations.
The Board and senior management follow
a rigorous process of approving, managing
and monitoring capital investments along
with planning for contingencies. All
capital expenditure above discretionary
limits requires Board approval prior to
commitment.
Movement in Year
During 2013 the Board focused on organic
expansion and consequently heightened
the Group’s relative exposure to the risks
associated with capital investment while at
the same time reduced the risks associated
with business acquisitions.
The Group’s financial success is ultimately
defined by its relationships with its key
customers. A material reduction in orders
from a major customer, whether through
competitive action, contractual dispute,
business consolidation or change in
strategy, could impact the Group’s financial
performance and prospects. The Group
is also reliant upon the conduct of its
customers, given its products are exported
by those customers across the world and
used in a range of environments, including
deep sea exploration and production.
Controls and Actions
Senior management maintains close
relationships with key customers and seeks
to maintain the highest level of service to
preserve Hunting’s reputation for quality.
The Group has a very wide customer base
that includes many of the major oil and
gas service providers and no one customer
represents an overly significant portion of
Group revenue.
Movement in Year
The Board believes that the risks associated
with key customers remained stable
during 2013.
The Group provides products to the oil
and gas shale drilling industry. Although it
is now an established practice in the US,
significant sections of the public continue
to view this activity as high risk and any
consequent moratorium or new laws may
unfavourably impact the industry.
Controls and Actions
The Board monitors public and political
opinion and maintains an awareness of
the potential for changes to legislation
especially with regard to the US where the
Group is mainly exposed.
The Group maintains a diverse portfolio of
products that extends beyond supplying
the shale drilling industry, including the
supplies for conventional drilling and
the manufacture of high precision and
advanced technology components for both
the onshore and offshore markets.
Many of the Group’s facilities have
the flexibility to re-configure their
manufacturing processes to meet with a
change in the pattern of demand.
Movement in Year
The Board believes that US consumers are
becoming more aware of the heightened
benefits and reduced risks associated with
shale drilling and that public resistance in
the US has abated to a certain degree.
The Board therefore considers that the risk
of a reduction in shale drilling activity in
the US has diminished.
Hunting PLC 2013 Annual Report and Accounts 35
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Principal risks and uncertainties
continued
Risks Common to International Manufacturing Businesses
Economics and
Geopolitics
Key Executives
The economic and political environments
in which the Group operates have the
potential to impact demand for energy
and therefore the Group’s range of products
and services.
The Group is highly reliant on the
continued service of its key executives
and senior management, who possess
commercial, engineering, technical and
financial skills that are critical to the
success of the Group.
The Group’s established facilities in the
Asia Pacific region has proportionately
increased its exposure to the emerging
markets in that part of the world. As they
grow, these economies could continue to
be less stable than Hunting’s established
regions of Europe and North America.
However, exposure to the risks of high
growth within these regions is considered
a necessary part of the Board’s expansion
strategy as well as a continued presence
in the stable areas of Europe and North
America.
Controls and Actions
Management and the Board closely
monitor projected economic trends
in order to match capacity to regional
demand.
Areas exposed to high political risk are
noted by the Board and are strategically
avoided.
Movement in Year
Notwithstanding the Group’s strongest
presence remaining in North America the
risk of exposure to economic uncertainty
has been slightly heightened during
the year.
Controls and Actions
Remuneration packages are regularly
reviewed to ensure that key executives
are remunerated in line with market rates.
External consultants are regularly engaged
to provide guidance on best practice.
Senior management regularly review the
availability of the necessary skills within the
Group and seeks to engage suitable staff
where they feel there is vulnerability.
Movement in Year
The composition of the Board has not
changed during the year and each member
has received further inductions to the
Group’s businesses.
A number of changes have arisen at the
senior management level with all vacated
positions being filled by competent
individuals who are anticipated to
proactively contribute to the success of
the Group.
Due to the small turnover of key personnel,
the Board has assessed the risk of losing key
executives as unchanged from last year.
Health, Safety and the
Environment (“HS&E”)
Due to the wide nature of the Group’s
activities it is subject to a relatively high
number of HS&E risks and the laws
and regulations issued by each of the
jurisdictions in which the Group operates.
The Group’s exposure to risk therefore
includes the potential for the occurrence of
a reportable incident, the financial risk of
a breach of HS&E regulations and the risk
of unexpected compliance expenditure
whenever a law or regulation is renewed
or enhanced.
Controls and Actions
The Board targets to achieve a record
of nil incidents and further aims for full
compliance with the laws and regulations
in each jurisdiction in which the Group
operates.
Every Group facility is overseen by a health
and safety officer with the responsibility for
ensuring current and newly issued HS&E
standards are complied with.
The Board receives a Group HS&E
compliance report at every Board meeting.
Movement in Year
The Group incurs a small number of minor
incidents each year, which is significantly
below the industry average and is similar to
the Group’s record in prior years. The risks
associated with HS&E have therefore not
materially changed.
Details of the Group’s HS&E record are
disclosed on page 41.
36 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
Effective Control Over
Subsidiaries
Fluctuation in Currency
Exchange Rates
Group subsidiaries operate within a control
framework with a degree of autonomy
vested in local management. Autonomy
incurs the risk of local decisions being
made outside the parameters of the Board’s
strategies and policies, possible breaches of
the Group’s Code of Conduct and a general
ineffectiveness by local management to
conduct business in a manner that furthers
the interests and profitability of the Group.
Controls and Actions
Each subsidiary is subject to regular
assessment that includes Board and
management meetings, regular reporting
and frequent contact. Compliance is further
checked by internal audit. The Group is
also subject to external audit.
A conference of senior management is held
annually in which key business operations
are discussed and challenged.
Senior managers at the Group’s subsidiaries
remain aware of their responsibilities to
corporate governance and the Group’s own
operational policies.
Movement in Year
No concerns were raised by the Board
during the year.
Many of the Group’s businesses import or
export goods and services and may have
to transact in currencies other than their
own functional currency. This exposes
the Group to currency fluctuations that
could affect reported results and the local
carrying values of assets and liabilities.
In addition, the Group’s consolidated
financial statements are subject to currency
fluctuations arising on the conversion of
each business’s financial statements into
the Group’s presentational currency.
Controls and Actions
The Group monitors each business’s
forthcoming exposure to foreign currency
transactions using weekly forecasts of
funding and currency requirements.
Exposures may be hedged, fully or partly,
with primary and derivative financial
instruments up to 18 months forward.
The functional currency of each business
is regularly assessed by local and central
management and accounting records are
re-configured when the functional currency
changes.
Senior management review the currency
profile of the Group’s budgets and forecasts
to assess the exposure to currency risk
arising from retranslation of subsidiary
financial statements. Derivative financial
instruments may be acquired to mitigate this
translation risk.
Movement in Year
Having changed the presentation currency
to US dollars, the risk of annual volatility
in Group consolidated results due to
exchange rate movements has been
significantly reduced.
Hunting PLC 2013 Annual Report and Accounts 37
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Corporate and Social
Responsibility
As an international services provider, Hunting relies
on its reputation within the energy industry. The
relationships developed with stakeholders are
critical to our business success and in order to
ensure the continuing growth of the Group we
constantly evaluate ways to strengthen our links
with investors, customers, suppliers, employees,
governments and the communities in which our
businesses operate.
The responsibility for building and
maintaining our reputation with
stakeholders extends from the Board, to our
executive management and to those
employees working at an operational level.
Hunting continues to update and introduce
policies on governance, business conduct,
bribery and corruption and most recently
human rights.
Further details on the Group’s governance
framework can be found within the
Corporate Governance Report on pages
50 to 53.
The Board believes that the combined
policies covering these areas continued to
remain effective during the year. The Board
also believes that the policies in place
covering other key areas such as human
rights, bribery and corruption and
compliance with laws and regulations
remained effective in the period.
Code of Conduct
Through the Group’s Code of Conduct
Hunting has published the basis on which
our employees interact with our customers
and suppliers around the world. Our
commitment to do business in an ethical
and transparent way enables Hunting to
occupy a position of trust with our partners.
As part of our established procedures, the
Code of Conduct is sent to all major trading
partners around the world.
Human Rights
Hunting is committed to upholding the
Human Rights of all individuals and in
March 2014 published its global Human
Rights Policy which is incorporated within
the Group’s Code of Conduct.
This policy extends to:
– providing a safe working environment
for all employees and contractors;
– respecting the rights of the individual
with a zero tolerance to any form of
discrimination, harassment or bullying;
– providing training and development
programmes to our global workforce;
– not employing child labour;
– promoting good relationships with the
communities in which we operate;
– operating in an environmentally aware
manner.
Investors
Communicating performance and future
strategy with the Group’s shareholders is of
key importance to the Board of Directors.
Communications include press releases
issued to the London Stock Exchange,
industry analyst and institutional investor
presentations and webcasts and interacting
with shareholders at general meetings of
the Company. Other communications
include an in-house corporate publication,
the Hunting Review, which is published
twice a year.
38 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
Regional training centres
“ Our commitment to
training in support of a
world class workforce is
essential for individual
personal development,
teamwork and to ensure
that we develop the right
skills for the next
generation.”
Attracting high quality candidates to the
oil and gas industry means having the right
resources to create an environment that
values continued learning, advancement
and fulfilment. A looming skills gap is
evident within the industry and the Group
has a responsibility to ensure that the right
skills sets are not just maintained but raised
for future success.
Amongst a strategic mix of programmes
designed to engage employees in their
respective workplaces, the Group has
also opened three dedicated Regional
Training Centres in Singapore, Houston,
and Oklahoma City to reinforce training
standards across the Group.
Training programmes and modules have
been developed to meet the Group’s
specific needs. Classroom instruction for
theoretical grounding is complemented by
practical hands-on training in the centres
workshops. The emphasis was initially to
train the trainers who could coach and
offer on-the-job, site specific guidance.
Further e-learning modules have been
customised to meet key industry standards
and along with company assessment and
qualifications, provide industry accepted
accreditation.
Classroom, workshop and e-learning are part of a
standardised training strategy.
Hunting PLC 2013 Annual Report and Accounts 39
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Corporate and Social Responsibility
continued
The Company is quoted on the London
Stock Exchange and has a premium listing
status, indicating its commitment to the
UK’s highest standards of regulation and
corporate governance as published by the
Financial Conduct Authority. The Company
is also required to comply with UK
Company Law and the laws and regulations
of the jurisdictions in which it operates.
Customers and Suppliers
Hunting’s customers and suppliers are an
integral part of the success of the Group.
Developing our relationships with these
partners is essential to our long-term
growth. The Hunting way of doing business
is summarised in the Code of Conduct,
with openness and transparency being key
components of our reputation with
long-term business partners.
Hunting PLC is a signatory to the UK
government’s Prompt Payment Code and is
committed to making timely payments to
our suppliers, providing transparency and
certainty to our business partners.
In order to promote its standing within our
industry sector, Group companies hold
memberships with a variety of organisations
including:
– American Petroleum Institute.
– Society of Petroleum Engineers.
– The Intervention and Coiled Tubing
Association.
– Leading Oil and Gas Industry
Competitiveness.
– Investors in People.
Employees
Our people are our most valuable asset and
the Group recognises that its success and
reputation depends upon their efforts,
integrity and commitment. Our people
create Hunting’s competitive edge and
ensure that our customers’ expectations are
met. Responsibility for employees lies with
local management, which allows local
cultural issues to be appropriately managed
and the necessary development
programmes to be structured accordingly.
Geographic split of employees 2012–2013
2,275
2,273
3,990
3,866
2013
2012
539
578
255
244
UK
USA
Canada
805
673
45
33
Asia Pacific
Other
71
65
Rest of
Europe
The demographic of our employees reflects
the global nature of the oil and gas industry
and the geographic diversity of the Group’s
activities.
At 31 December 2013, the Group had
3,990 employees (2012 – 3,866) with the
geographical split shown in the chart
above.
Hunting believes that employing the right
people is only the start of the relationship
between an employee and employer.
The Group seeks to adhere to all relevant
local and jurisdictional laws covering
employment and minimum wage
legislation. As a responsible employer, full
and fair consideration is given to
applications for positions from disabled
persons and to their training and career
advancement. Every effort is made to retain
in employment those who become
disabled while employed by the Group.
It is important for the Group to retain key
employees and to recruit high quality
candidates. This remains a major challenge
for the oil and gas industry. Hunting has
cultivated a supportive environment that
promotes development, learning and
advancement to ensure that its employees
realise their potential. Long service is a
feature of the Group’s employment profile
and recognition is given through service
award programmes across the Group.
Thirty years’ service is not an uncommon
attribute. The Group believes that providing
additional benefits to staff encourages the
best performance from our people. The
majority of employees are offered
participation in schemes which provide
healthcare and post-retirement benefits
and, in certain instances, participation in
bonus arrangements when outperformance
in terms of operational excellence has been
achieved. Hunting has share award
schemes in place as a longer-term incentive
and to encourage employees to participate
in the ownership of the Company.
The Board has an established “whistle-
blowing” procedure for any employee
wishing to raise, in confidence, any
concerns they may have about possible
financial improprieties, or other matters,
with the Chairman or Senior Independent
Director. During 2013 an independent and
confidential whistle-blowing reporting
service operated by Safecall Limited was
commissioned with contact details
communicated to all employees.
Diversity
Hunting’s diversity policy is detailed within
the Corporate Governance Report. The
Group adheres to these principles to ensure
equal opportunities are given to its global
workforce across the whole spectrum of
diversity areas, including gender.
40 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
“ Hunting’s customers and
suppliers are an integral
part of the success of the
Group and developing our
relationships with these
partners is essential to our
long-term growth.”
Hunting’s Gender Balance
Total number
of officers/
employees
Number
of males
%
Number of
females
%
Senior
Management
Whole
Workforce
162
3,990
92
83
8
17
The London corporate office participates in local
charitable activities, supplemented by charitable
donations given by the Chairman’s Charitable Trust.
The Group’s gender diversity is represented
in the table below.
Hunting’s senior management is defined
as those employees who have influence in
the daily running of the Group’s major
operational businesses and activities,
including the number of persons who were
directors of the undertakings included in
the consolidation.
Hunting’s Board currently comprises a small
and all-male Board of six Directors with no
female representation. As noted in the
Corporate Governance Report, the Board of
Hunting will appoint a female Director as
soon as is practical taking into account the
need to periodically refresh the Board.
Community
Hunting’s commitment to the communities
in which it operates extends on many
fronts. The Group participates in a number
of initiatives and events which raise money
for charities and community projects
around the world. In 2013, many Hunting
employees participated in local charitable
events with associated corporate support.
The Hunting Art Prize is an annual event
hosted in Houston which supports local
community organisations. In 2013, the Art
Prize supported the charity New Danville, a
self-sustaining community dedicated to
providing adults with intellectual and
development disabilities an opportunity to
live, work, and grow with their non-
disabled peers. In 2014, Hunting’s chosen
charity is Patriot PAWS Service Dogs.
Patriot is dedicated to training dogs to assist
disabled service veterans and others with
mobile disabilities.
The Group also makes donations to various
UK charities through the Chairman’s
charitable trust committee, which
comprises the Chairman and former
Hunting employees. In 2013, assistance was
granted to 36 charities.
During 2013, the Group donated $0.5m
(2012 – $0.3m) to charities.
Health and Safety
The Group operates from 41 principal
manufacturing facilities and 34 service and
distribution points across the globe and all
are committed to achieving and maintaining
the highest standards of safety for its
employees, customers, suppliers and the
public.
Hunting has a proven culture of aiming for
best practice and employs rigorous health
and safety practices. Health and Safety
policies include:
– Regular audit and maintenance reviews
of facilities, equipment, practices and
procedures to ensure compliance with
prevailing standards and legislation and
a safe environment for all those who
work within and around our facilities.
– Seeking accreditation and aligning long
standing company programmes and
procedures to internationally recognised
Quality Assurance standards.
– Monitoring, which is a management
task, documented and reported at
Board level.
– Appropriate training and education of
all staff.
– A detailed combined policy on health,
safety and environmental matters, which
can be found on the Company’s website
www.huntingplc.com.
Hunting’s Director of Health, Safety and
Environment reports directly to the Chief
Executive and a report is considered by the
Board of Directors at each meeting.
The Group’s target is to achieve zero
recordable incidents. Each local business is
required to develop tailored policies to suit
their environment. These incorporate the
Group’s approach to putting safety first and,
at a minimum, to comply with local
regulatory requirements. Training is given to
every employee, throughout the Group.
During the year, there were no fatalities
across the Group’s operations with
63 recordable incidents (2012 – 82). The
incident rate, as calculated from guidance
issued by the Occupation Safety and
Health Administration in the US, was 1.54
compared to 1.94 in 2012. The industry
average incident rate in 2013 was 7.0
(2012 – 5.6).
Hunting PLC 2013 Annual Report and Accounts 41
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Strategic Report
Corporate and Social Responsibility
continued
In 2013, the Group continued its
programme to introduce lean
manufacturing processes into global
operations. This resulted in efficiency gains
in a number of key business units.
The Group continuously strives to gain
leadership in areas of technology relevant
to the Group’s products and at the year end
had 338 active patents.
Environment
The Group is committed to the protection
of the environment and developing
manufacturing processes and procedures,
which ensure that any adverse effects on
the environment are kept to a minimum.
The Group’s environmental policy is to
look for opportunities and adopt practices
that create a safer and cleaner environment.
It is particularly sensitive to the challenges
for the industry in which it operates. The
Group has programmes in place to monitor
the environmental impact from its
operational activities and remains focused
on ensuring environmental consideration is
at the forefront of its business practices.
Key aspects of our environmental policies
include:
– Keeping any adverse effects on the
environment to a minimum.
– Encouraging the reduction of waste and
emissions and promoting awareness of
recycled materials and use of renewable
resources.
– Each operating unit developing and
implementing their own procedures
while conducting regular reviews to
ensure that they are maintained and
refined.
– Encouraging employees to pay special
regard to environmental issues and
requirements in the communities in
which the Group operates.
– Incorporating health, safety and
environment considerations into the
design of new facilities.
Marshall Harris is announced as the winner of the
annual Hunting Art Prize for his work ‘Round Up’.
ISO Accreditation
(% of manufacturing facilities)
Quality and Manufacturing Excellence
The Group is committed to enhancing its
production and operational quality with a
number of facilities being certified ISO
9001 (quality), 14001 (health and safety)
and 18001 (environmental) compliant,
indicating that globally recognised
standards and systems are in place.
20
7
54
More facilities across the Group are
working towards these accreditations,
continuing the Group’s commitment to
monitoring and reducing the environmental
impact of its operations and increasing
HSE standards.
18001
14001
9001
Operational and production excellence is a
key feature of our relationship with
customers, therefore quality assurance for
each component manufactured is a key
indication of our drive to be an industry
leading provider of critical components and
measurement tools.
42 Hunting PLC 2013 Annual Report and Accounts
Strategic Report
CO2 emissions (tonnes)
The Group monitors and collects data relating to its greenhouse gas emissions from across
its operations and submits data to the UK’s Carbon Disclosure Project.
39,180
41,853
2012
2013
In compliance with the Climate Change Act (2008) each business unit across the Group
has reported scope 1 and 2 emissions to provide a consolidated total of each source of
greenhouse gas emissions for the year ended 31 December 2013. Scope 1 emissions result
from direct sources such as fossil fuels consumed onsite. Scope 2 emissions are indirect
emissions such as electricity consumed by a business. The reporting basis for emissions
has been presented on an operational control basis, with data collected on the six
greenhouse gases highlighted by the Kyoto Protocol. Total emissions are converted to a
carbon dioxide equivalent figure, using the methodologies and conversion factors detailed
in the UK government’s Environmental Reporting Guidance as published by DEFRA
(www.gov.uk/defra) in June 2013.
The following table details Hunting’s scope 1 and 2 emissions:
CO2 equivalent emissions (tonnes)
Scope 1
Scope 2
8,309
33,544
9,061
30,119
Total controlled emissions
41,853
39,180
*2012 emissions have been restated following publication of revised factors by DEFRA.
–8
+11
+7
2013
2012*
% change
The Group also collects mains water usage data and in 2013 consumed 195k cubic metres
(2012 – 169k cubic metres) of water.
The Group’s emissions are primarily a function of the production activity within its
operating facilities, therefore the Group’s facilities square footage has been adopted as the
basis of the intensity factor presented below:
Total controlled emissions (tonnes)
Facilities footprint (‘000 square feet)
Intensity Factor
2013
2012
% change
41,853
2,763
39,180
2,705
15.2
14.5
+7
+2
+5
2013 has seen the Group continue to develop and enhance its relationships with all
stakeholders with a commitment from all levels of the Group to deliver value for its
partners in the long term.
Dennis Proctor
Chief Executive
6 March 2014
Peter Rose
Finance Director
Hunting PLC 2013 Annual Report and Accounts 43
Strategic ReportCorporate GovernanceFinancial StatementsOther Information
Corporate Governance
Board of Directors
Richard Hunting C.B.E.
Non-executive Chairman
Dennis Proctor
Chief Executive
Peter Rose
Finance Director
Was elected an executive Director and
Deputy Chairman on the formation of
Hunting PLC in 1989 and has been
Chairman of the Board since 1991. In
2011, Mr Hunting moved from an
executive to a non-executive role.
Chairman of the Nomination
Committee. He is a non-executive
director of the Royal Brompton &
Harefield NHS Foundation Trust.
Was appointed a Director in 2000 and
Chief Executive in 2001. He was chief
executive of Hunting Energy Services
from March 2000 after joining the
Group in 1993. He is a US citizen
based in Houston, Texas and has held
senior positions in the oil services
industry in Europe, Middle East and
North America.
Was appointed to the Board as Finance
Director in 2008. A Chartered
Accountant, he joined Hunting in 1997
prior to which he held senior financial
positions with Babcock International.
Board Subcommittee Membership
Executive Directors
Dennis Proctor
Peter Rose
Non-executive Directors
Richard Hunting
John Hofmeister
John Nicholas
Andrew Szescila
44 Hunting PLC 2013 Annual Report and Accounts
Audit
Committee
Nomination
Committee
Remuneration
Committee
–
–
–
✔
✔
✔
✔
–
✔
✔
✔
✔
–
–
–
✔
✔
✔
Corporate Governance
John Hofmeister
Non-executive Director
John Nicholas
Non-executive Director
Andrew Szescila
Non-executive Director
Was appointed a non-executive
Director in 2009 and is the Company’s
Senior Independent Director. A US
citizen resident in Houston, Texas. He
is the founder and chief executive
officer of the Washington D.C.
registered not-for-profit Citizens for
Affordable Energy Inc, and a non-
executive director of Camac Energy Inc
and Applus. He is the former President
of Shell Oil Company and a former
Group Director of Royal Dutch Shell
PLC in The Hague, Netherlands.
Was appointed a non-executive
Director in 2009 and is chairman of the
Audit Committee. He is a Fellow of the
Association of Chartered Certified
Accountants and is a member of the
UK Financial Reporting Review Panel.
He is currently a non-executive director
of Diploma PLC, Rotork PLC and
Mondi plc. He was formerly the Group
Finance Director of Tate & Lyle plc and
prior to that Group Finance Director of
Kidde plc.
Was appointed a non-executive
Director in 2011 and is chairman of the
Remuneration Committee. A US citizen
resident in Destin, Florida. He is
currently a non-executive director of
UK quoted Frontera Resources
Corporation. He was formerly the Chief
Operating Officer of Baker Hughes Inc.
Hunting PLC 2013 Annual Report and Accounts 45
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Report of the Directors
The Directors present their report, together with the audited
consolidated financial statements for the year ended 31 December
2013.
Post Balance Sheet Events
There are no disclosable post balance sheet events.
Principal Activities and Strategic Report
Hunting PLC is a holding company whose subsidiaries are primarily
involved in the manufacture and distribution of products that
enable the extraction of oil and gas for the world’s leading energy
companies.
The Company is UK domiciled and incorporated in England and
Wales. Details of the Company’s principal subsidiaries are set out
in note 42. A full list of the Company’s subsidiaries will be
incorporated into the 2014 Annual Return.
The Strategic Report, which is set out on pages 2 to 43, provides a
comprehensive review of the development, performance and
future prospects of the business for the year ended 31 December
2013 (pages 20 to 33). The information set out includes a
description of the Company’s strategy and business model (pages 6
to 13), the principal risks and uncertainties facing the Group (pages
34 to 37), key performance indicators (pages 14 and 15) and key
information about environmental matters, the Company’s
employees and community issues. These sections, including the
Corporate Governance Report on pages 50 to 53, are deemed to
form part of this report.
Results
The results of the Group are set out in the Consolidated Income
Statement on page 84.
From 1 January 2013, Hunting PLC has changed the currency in
which it presents its consolidated financial statements from Sterling
to US dollars. In addition the functional currency of the Company
has changed to US dollars. See note 1 for further details.
Dividends
The Directors, subject to approval by shareholders at the Annual
General Meeting of the Company to be held on 16 April 2014,
recommend a final dividend of 21.8 cents per share (2012 – 21.3
cents), which together with the interim dividend of 7.7 cents (2012
– 7.1 cents), takes the total dividend for the year to 29.5 cents per
share (2012 – 28.4 cents), an increase of 4%. The final dividend
will be paid on 27 May 2014 to shareholders on the register at the
close of business on 2 May 2014.
Changes in the Group and its Interests During the
Financial Year
On 29 May 2013, the Group purchased the assets of XL Perforating
Partnership, a distributor of perforating products in Western
Canada, for a consideration of $8.7m. Further details can be found
in note 41.
Annual General Meeting
The Annual General Meeting of the Company will take place on
Wednesday 16 April 2014 at The Royal Automobile Club, 89 Pall
Mall, London SW1Y 5HS, commencing at 10.30am.
At the meeting, as well as routine matters, members will be
asked to:
– approve the Directors’ Remuneration Policy;
– approve the Annual Report on Remuneration; and
– approve the new 2014 Hunting Performance Share Plan.
Further details of the resolutions and voting procedures are set out
in the Notice of Annual General Meeting.
Shareholders can vote by completing the form of proxy sent with
the Notice of Meeting, or by submitting votes electronically via the
Registrars’ website www.sharevote.co.uk or via their online
portfolio service, Shareview, if registered as a member.
Alternatively, shares held in CREST may be voted through the
CREST Proxy Voting Service. To be valid all votes must be received
no later than 48 hours before the time set for the meeting.
Directors
The biographies of the Directors of the Company as at
31 December 2013 are set out on pages 44 and 45 of this report.
As recommended by the UK Corporate Governance Code, all
Directors will submit themselves for re-election at the Company’s
Annual General Meeting.
No Director during the year had a material interest in any contract
of significance to which either the Company or any of its
subsidiaries were a party. Directors’ interests in the shares of the
Company are shown on page 74.
As at 31 December 2013, no Director of the Company had any
beneficial interest in the shares of subsidiary companies.
Powers of the Directors
Subject to the Company’s Articles of Association, UK legislation
and any directions prescribed by resolution at a general meeting,
the business of the Company is managed by the Board. The
Directors have been authorised to allot and issue Ordinary shares
and to disapply statutory pre-emption rights. These powers are
exercised under authority of resolutions of the Company passed at
its Annual General Meeting. During the financial year ended 31
December 2013 693,519 Ordinary shares were issued pursuant to
the Company’s various share plans.
46 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Further, the Company has authority, renewed annually, to purchase
up to 14.99% of the issued share capital, equating to 22,042,681
shares. Any shares purchased will either be cancelled, and the
number of Ordinary shares in issue reduced accordingly, or held in
Treasury.
Transfers of uncertificated shares must be carried out using CREST
and the Directors can refuse to register a transfer of an
uncertificated share in accordance with the regulations governing
the operation of CREST.
These powers are effective for 15 months from the date of
shareholder approval, or up to the next general meeting where new
authorities are sought.
The Directors may decide to suspend the registration of transfers,
for up to 30 days a year, by closing the register of shareholders. The
Directors cannot suspend the registration of transfers of any
uncertificated shares without obtaining consent from CREST.
There are no restrictions on the transfer of Ordinary shares in the
Company other than:
– certain restrictions that may from time to time be imposed by
laws and regulations, for example insider trading laws;
– pursuant to the Company’s share dealing code whereby the
Directors and certain employees of the Company require
approval to deal in the Company’s shares; and
– where a shareholder with at least a 0.25% interest in the
Company’s certificated shares has been served with a disclosure
notice and has failed to provide the Company with information
concerning interests in those shares.
The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer of
Ordinary shares or on voting rights.
Registrar
The address and contact details of Equiniti Limited, the Company’s
Registrar, are listed on the inside back cover of this report. Equiniti is
the Company’s single alternative inspection location, whereby
individuals can inspect the register of members. Individual
shareholders may view their personal shareholder information
online, through the www.shareview.co.uk website.
Employee Share Trust
The Hunting Employee Share Trust was established on 5 June 1996
as a vehicle to satisfy shares options and awards granted to
employees who participate in the share-based incentive schemes
run by the Company. At 31 December 2013 the Trust held 986,731
Ordinary shares in the Company (2012 – 986,731). The Trust has
elected to waive its voting rights and all dividends attached to the
shares held. The Trust has a policy to purchase shares in the market
or subscribe for new shares to meet future requirements of these
incentive schemes. During the year, the Trust subscribed for
486,700 Ordinary shares with an aggregate nominal value of
$0.2m. The total consideration was $7.0m.
Details of the employee share schemes can be found in the
Directors’ Remuneration Policy on pages 64 and 65 and in note 37.
The Directors will be seeking new authorities for these powers at
the 2014 Annual General Meeting.
Directors’ and Officers’ Liability Insurance
The Company maintains insurance against certain liabilities, which
could arise from a negligent act or a breach of duty by its Directors
and Officers in the discharge of their duties. This is a qualifying third
party indemnity provision, which was in force throughout the
financial year.
Articles of Association
The Company’s Articles of Association may only be amended by
special resolution at a general meeting of shareholders. Where class
rights are varied, such amendments must be approved by the
members of each class of share separately.
Share Capital
The Company’s issued share capital comprises a single class, which
is divided into Ordinary shares of 25 pence each, details of which
are set out in note 32 of the financial statements. All of the
Company’s issued Ordinary shares are fully paid up and rank
equally in all respects. As at 31 December 2013, there were
147,742,760 Ordinary shares in issue. The rights and obligations
attached to these shares are summarised below and are detailed in
the Articles of Association of the Company, copies of which can be
obtained from Companies House in the UK, or by writing to the
Company Secretary at the registered office of the Company. Subject
to applicable statutes, shares may be issued with such rights and
restrictions as the Company may, by ordinary resolution, decide, or
(if there is no such resolution or so far as it does not make specific
provision) as the Board may decide. The movements in share
capital during the year are detailed in note 32 of this report.
Voting Rights and Restrictions on Transfer of Shares
On a show of hands at a general meeting of the Company, every
holder of Ordinary shares present in person or by proxy, and
entitled to vote, has one vote, and, on a poll, every member present
in person or by proxy and entitled to vote has one vote for every
Ordinary share held. None of the Ordinary shares carry any special
rights with regard to control of the Company. Proxy appointments
and voting instructions must be received by the Company’s
Registrars not later than 48 hours before a general meeting.
A shareholder can lose his entitlement to vote at a general meeting
where that shareholder has been served with a disclosure notice
and has failed to provide the Company with information concerning
interests in those shares. Shareholders’ rights to transfer shares are
subject to the Company’s Articles of Association.
Hunting PLC 2013 Annual Report and Accounts 47
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Report of the Directors continued
Substantial Interests
As at 31 December 2013 pursuant to the Disclosure and Transparency Directive, issued by the Financial Conduct Authority, the major
shareholders of the Company are as follows:
AXA group of companies
Hunting Investments Limited
Mirabaud Investment Management
Slaley Investments Limited
Threadneedle Asset Management
F Godson – as trustee
Norges Bank Investment Managers
Royal London Asset Management
Franklin Templeton Fund Management
Legal & General Investment Management
BlackRock group of companies
Standard Life Investments
J Trafford – as trustee
F&C Asset Management
Henderson Global Investors
David RL Hunting
– as trustee
– other beneficial
Notes
Number of
Ordinary shares
Percentage of issued
Ordinary shares
16,423,868
10,884,743
6,918,611
6,411,679
6,212,332
5,722,170
5,635,895
4,801,174
4,340,000
4,229,029
4,142,297
4,038,384
3,541,281
3,172,512
2,779,310
199,910
2,549,117
2,484,583
(i)/(iv)
(ii)
(ii)
(ii)
(iii)
11.1%
7.4%
4.7%
4.3%
4.2%
3.9%
3.8%
3.2%
2.9%
2.9%
2.8%
2.7%
2.4%
2.1%
1.9%
0.1%
1.7%
1.7%
Notes
i.
Included in this holding are 9,437,743 Ordinary shares held by Huntridge Limited, a wholly owned subsidiary of Hunting Investments Limited. Neither of these companies is owned by
Hunting PLC either directly or indirectly.
ii. After elimination of duplicate holdings, the total Hunting family trustee interests shown above amount to 6,025,864 Ordinary shares.
iii. Arise because David RL Hunting and his children are or could become beneficiaries under the relevant family trusts of which David RL Hunting is a trustee.
iv. Richard H Hunting (Chairman of Hunting PLC) and David RL Hunting are both directors of Hunting Investments Limited.
Greenhouse Gas Emissions
The Group’s greenhouse gas emissions for 2013 total 41,853 tonnes
(2012 – 39,180 tonnes). For further details please see page 43 of the
Strategic Report.
result of a change of control. Further details of the Directors’
service contracts can be found in the Directors’ Remuneration
Policy contained within pages 66 and 67.
Research and Development
Group subsidiaries undertake, where appropriate, research and
development to meet particular market and product needs. The
amount incurred by the Group during the year was $0.6m (2012 –
$2.7m).
Political Contributions
It is the Group’s policy not to make political donations, accordingly
there were no political donations made during the year (2012 –
$nil).
Significant Agreements
The Company is a party to a revolving credit facility in which the
counterparties can determine whether or not to cancel the
agreement where there has been a change of control of the
Company.
The service agreements of the executive Directors include
provisions for compensation for loss of office or employment as a
48 Hunting PLC 2013 Annual Report and Accounts
Going Concern
The Group has a broad range of products and services, a large
portfolio of production and storage facilities, a sufficiently diverse
global customer and supplier base and meets its day-to-day
working capital requirements through its cash and debt facilities.
The Group has limited exposure to the Eurozone or other regions
that are perceived as high risk or exposed to the direct impact of
austerity measures. The Group also retains limited exposure to
credit risk as it has strong, well-developed relationships with its
major customers and maintains insurance cover for 96% of its
trade receivables.
In conducting its review of the Group’s ability to remain as a going
concern for the foreseeable future, the Board assessed the Group’s
recent trading position and its latest forecasts and took account of
reasonably predictable changes in future trading performance. The
Board also considered the Group’s current business model, its
strategy, the principal risks and the potential financial impact of the
estimates, judgements and assumptions that were used to prepare
Corporate Governance
these financial statements. The Board is satisfied that all material
uncertainties have been identified and they are not considered to
be sufficiently material to impact the financial viability of the
Group.
The Group has access to considerable financial resources including
a $621.1m (£375m) committed bank facility. The main financial
covenants (note 35) attached to this facility are (1) EBITDA should
not be less than four times net finance charges, and (2) net debt
should be no more than three times adjusted EBITDA. The Group
continues to have significant headroom over both covenants.
The Board is satisfied that it has conducted a robust review of the
Group’s foreseeable future and has a high level of confidence that
the Group has the necessary liquid resources to meet its liabilities
as they fall due, will be able to sustain its operational requirements
and will remain solvent during that period. Consequently the Board
continues to adopt the going concern basis of accounting in
preparing these consolidated financial statements.
Independent Auditors
PricewaterhouseCoopers LLP has indicated its willingness to
continue in office as auditors. A resolution to reappoint them as
auditors to the Group will be proposed at the Annual General
Meeting to be held on 16 April 2014.
Statement of Disclosure of Information to Auditors
In accordance with the Companies Act 2006, all Directors in office
as at the date of this report have confirmed, so far as they are
aware, there is no relevant audit information of which the Group’s
auditors are unaware and each Director has taken all reasonable
steps necessary in order to make himself aware of any relevant
audit information and to establish that the Group’s auditors are
aware of that information. This confirmation is given and should be
interpreted in accordance with the provisions of Section 418 of the
Companies Act 2006.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report,
the Audit and Remuneration Committee Reports and the financial
statements in accordance with applicable laws and regulations.
Company Law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
have prepared the Group and parent Company financial
statements in accordance with International Financial Reporting
Standards (“IFRSs”) as adopted by the European Union (“EU”).
– state whether applicable IFRSs as adopted by the EU have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
– prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
Company’s transactions and disclose with reasonable accuracy at
any time the financial position of the Group and the Company and
to enable them to ensure that the financial statements and the
Remuneration Committee Report comply with the Companies Act
2006 and, as regards the Group financial statements, Article 4 of
the IAS Regulation. The Directors are also responsible for
safeguarding the assets of the Group and the Company and for
taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for the maintenance and
integrity of the Group’s website, www.huntingplc.com. Legislation
in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
Pursuant to the Financial Conduct Authority’s Listing Rules,
Disclosure and Transparency Rules and the UK Corporate
Governance Code, each of the Directors, whose names and
responsibilities are listed on pages 44 and 45, confirm that, to the
best of their knowledge and belief:
– the financial statements, prepared in accordance with IFRSs as
adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit of the Group and of the
Company;
– the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess a company’s performance, business
model and strategy;
– the Strategic Report on pages 2 to 43 comprising the Group
Performance Summary and Corporate and Social Responsibility
Report, includes a fair review of the development and
performance of the Group’s operations and the year-end
position of the Group and the Company, together with a
description of the principal risks and uncertainties they face.
The Strategic Report also details the Group’s policies on human
rights, gender balance and its scope 1 and 2 greenhouse gas
emissions.
Under Company Law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of
the profit or loss of the Group for that period.
By Order of the Board
In preparing these financial statements, the Directors are required
to:
– select suitable accounting policies and apply them consistently;
– make judgements and accounting estimates that are reasonable
and prudent;
Ben Willey
Company Secretary
6 March 2014
Hunting PLC 2013 Annual Report and Accounts 49
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Corporate Governance Report
“ It is with great pleasure that I introduce to you our
Corporate Governance Report for 2013. During the year the
Board implemented new procedures following publication
in 2012 of the revised UK Corporate Governance Code and
Guidance for Audit Committees.
UK Corporate Governance Code
This report, which has been approved by the Board, reports on the
Company’s compliance with the UK Corporate Governance Code
(the “Code”) as issued by the Financial Reporting Council (“FRC”)
in 2012 and how the principles of the Code have been applied
during the year.
Attention is now placed on a tendering process for the
appointment of the Group’s external auditor. The Board, on
recommendation of the Audit Committee, believes that a
tender process is not necessary at present due to the
thoroughness and effectiveness of the audit completed in
the year. Commentary supporting this is provided in the
Audit Committee Report.
The Company was fully compliant with the Code’s provisions
throughout the year, except with regard to the Code’s request to
put the external audit contract out to tender at least every 10 years.
For the reasons stated in the Audit Committee Report on page 80,
the Board believes appropriate measures are in place to ensure the
audit undertaken by PricewaterhouseCoopers LLP is effective and
remains independent.
The Board spent time during the year considering its plans
for management succession. Stability within the senior
managers and executive Director levels of the Group is of
primary concern to the Board, therefore management
succession will be a regular agenda topic at future Board
meetings. This is to ensure the development of our key
personnel at all levels is achieved which is key to supporting
the long-term viability of the Group.”
Richard Hunting C.B.E., Chairman
Compliance with the revised principles relating to Directors’
remuneration is reported within the Remuneration Committee
Report on pages 54 to 77 and the activities of the Audit Committee
are reported on pages 78 to 80.
Board Composition and Committee Membership
The Board of Directors currently comprises the non-executive
Chairman, Chief Executive, Finance Director and three
independent non-executive Directors, including the Senior
Independent Director. The Directors, together with brief
biographical details, are identified on pages 44 and 45.
The division of responsibilities between the Chairman and Chief
Executive is set out in writing and agreed by the Board. This
composition, with a separate Chairman and Chief Executive,
ensures a balance of responsibilities and authorities.
All independent non-executive Directors are appointed to the
Company’s Nomination, Audit and Remuneration Committees.
Non-executive Directors’ letters of appointment include details of
their duties and expected time commitments required.
Excluding the Chairman, 60% of the Board is currently comprised
of independent non-executive Directors. Mr Hunting, the
Company’s non-executive Chairman, is not regarded as
independent, given his former executive position since joining the
Company in 1989.
The Company has procedures in place to deal with potential
conflicts of interest whereby actual and potential conflicts of
interest are reviewed, and appropriate authorisation sought, prior
to the appointment of any new Director or if a new conflict arises
with an existing Director. In accordance with the Articles of
Association, only non-conflicted Directors are involved in the
authorisation process. The Board is of the view that these
procedures operated effectively throughout the year. The Group
operates a decentralised management structure to allow for rapid
responses to business matters. A framework of controls with
discretionary limits and powers for local management is contained
within a group manual.
50 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Appointment and Replacement of Directors
Rules for the appointment and replacement of Directors are set out
in the Company’s Articles of Association. Directors are appointed
by the Company by ordinary resolution at a general meeting of
ordinary shareholders or by the Board on the recommendation of
the Nomination Committee. The Company may also remove a
Director. Additional details of the workings of the Nomination
Committee are set out on page 53.
The performance of the Chairman was evaluated by the non-
executive Directors, led by the Senior Independent Director. The
independent non-executive Directors evaluated the performance
of the individual executive Directors, with feedback being
provided to the Chairman and then to the respective Directors. The
performance of the non-executive Directors and that of the
subcommittees of the Board was assessed by the executive
Directors.
Following the Code’s guidance on the election of Directors, all
members of the Board submit themselves for re-election at each
Annual General Meeting of the Company.
As recommended by the Code, the Board appoint external
facilitators every three years to complete a Board performance
evaluation. The next external evaluation will take place in 2015.
The non-executive Directors are initially appointed for a three year
term with subsequent reappointment conditional upon an
appraisal and review process. Letters of appointment for each of
the independent non-executive Directors and non-executive
Chairman are available from the Company upon request and their
terms of appointment are summarised on page 66. Details of the
executive Directors’ service contracts are set out on page 66.
Prior to the appointment of a non-executive Director, the Nomination
Committee undertakes an evaluation of the Board’s requirements to
ensure the balance of skill and experience is maintained to fulfil the
Group’s strategy. In the case of a non-executive Director being
reappointed, the Code recommends a particularly rigorous evaluation
with particular consideration being given to the need to regularly
refresh the Board and to continued independence.
On appointment to the Board, each Director receives an
introduction to the Group tailored to their experience and needs
including site visits. All Directors have access to the Company
Secretary and to independent professional advice, at the
Company’s expense, in the furtherance of their duties. Directors
are encouraged to maintain their skills and knowledge to best
practice standards and, where appropriate, attend update training
courses on relevant topics. During the year, the Chairman held
meetings with the non-executive Directors without the executive
Directors being present and also met each individual Director to
discuss training and development requirements.
The Company Secretary, through the Chairman, is responsible for
keeping the Board informed of Corporate Governance
developments and maintaining corporate awareness of legislative
and regulatory changes. The appointment and removal of the
Company Secretary is a matter reserved for the Board.
Annual Performance Evaluation
During 2013, the Board completed an internal performance
evaluation exercise, which comprised of a detailed questionnaire
on its operation and practices and that of the subcommittees of the
Board. The findings from the questionnaire were presented by the
Chairman to the Board at its March 2014 meeting.
Board and Committee Meetings
The Board’s powers and authorities under which they act and as
detailed in the Company’s Articles of Association are contained
within the Report of the Directors on pages 46 and 47.
The Board normally holds six formal meetings each year. Meeting
dates are set a year in advance. Attendance by each of the
Directors at Board or subcommittee meetings is detailed below.
The duties and responsibilities of the Board and its subcommittees
are formally agreed by the Board in writing.
Matters specifically reserved for the Board include, but are not
limited to, the following:
– compliance with UK Company Law and the UKLA’s Listing
Rules;
– review and assess the effectiveness of the Group’s system of risk
management and internal control;
– approve all Stock Exchange announcements;
– approve the full and half year financial statements, including the
declaration of dividends;
– consider the Group’s commercial strategy and approve the
annual budget; and
– consider recommendations of the Board subcommittees including
Board remuneration, appointments and their terms of reference.
Board papers are always circulated in advance of meetings. These
include detailed financial reports on the Group’s activities, reports
on each operating division, health and safety, risk management and
investor relations reports. In addition, the meetings held in March
and August focus on the full and half year results respectively and
the meeting in December focuses on the budget for the following
financial year.
During the year, the Board reviewed the major Stock Exchange
announcements issued by the Group, including the full and half year
results, and concluded that the information presented was a fair,
balanced and understandable assessment of the affairs of the Group.
Hunting PLC 2013 Annual Report and Accounts 51
Strategic ReportCorporate GovernanceFinancial StatementsOther Information
Corporate Governance
Corporate Governance Report continued
Number of meetings held in 2013
Number of meetings attended:
Richard Hunting
Dennis Proctor
Peter Rose
John Hofmeister
John Nicholas
Andrew Szescila
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
6
6
6
6
6
6
6
4
–
–
–
4
4
4
Nil
–
–
–
–
–
–
5
–
–
–
5
5
5
Internal Control
The Board acknowledges its responsibility for monitoring the
Group’s system of internal control, for reviewing its effectiveness
and for compliance with the Turnbull guidance, now incorporated
into the Code. The internal control system, which has been in
place throughout 2013 and up to the date of approval of these
accounts, is an ongoing evolutionary process designed to identify,
evaluate and manage the significant risks to which the Group is
exposed. These systems of internal control are designed to manage
rather than eliminate risks, therefore they only provide reasonable,
but not absolute, assurance against material misstatement or loss in
the financial statements and of meeting internal control objectives.
The Directors have reviewed the effectiveness of the Group’s
system of internal control for the period covered by these financial
statements, the key features of which are as follows:
Management Structure – within operational parameters set by the
Board, management is delegated to the executive Directors.
Subsidiaries operate within clearly defined policies and authorities
contained within a group manual under a decentralised
management structure. All senior management changes require the
prior approval of the Chief Executive.
Reporting and Consolidation – all subsidiaries submit detailed
financial information in accordance with a pre-set reporting
timetable. This includes weekly, bi-monthly and quarterly treasury
reports, monthly management accounts, annual budgets and
two-year plans, together with half year and annual statutory
reporting. The Group’s consolidation process is maintained and
updated with regular communication, including distribution of a
group manual to all reporting units. The Group monitors and
reviews new UK Listing Rules, Disclosure and Transparency Rules,
accounting standards, interpretations and amendments and
legislation and other statutory requirements. Subsidiary reporting
entities are supported by instruction from Group and structured
training. All data is subject to review and assessment by
management through the monitoring of key performance ratios and
comparison to targets and budgets. The content and format of
reporting is kept under review and periodically amended to ensure
appropriate information is available.
Strategic Planning and Budgeting – strategic plans and annual
budgets containing comprehensive financial projections are
formally presented to the Board for adoption and approval and
form the basis for monitoring performance. Clearly defined
procedures exist for capital expenditure proposals and
authorisation.
Quality Assurance – most of the business sectors within which the
Group operates are highly regulated and subsidiaries are invariably
required to be accredited, by the customer or an industry regulator,
to national or international quality organisations. These
organisations undertake regular audits and checks on subsidiary
procedures and practices ensuring compliance with regulatory
requirements.
During the year there were no material changes to the internal
control procedures described above.
Institutional Shareholders
The Company uses a number of processes for communicating with
shareholders, including stock exchange announcements, the
annual and half year reports and webcasts, interim management
statements issued twice a year, and the Annual General Meeting to
which all shareholders are invited. In addition, the Chief Executive
and Finance Director meet on a one-to-one basis with all principal
shareholders at least twice a year, following the Group’s half and
full year results, or when requested to update them on Group
performance and strategy. The Board is in turn briefed by the Chief
Executive, when appropriate, on matters raised by shareholders.
During the year, the Chairman of the Remuneration Committee
met with key shareholders to discuss the implementation of the
new 2014 Hunting Performance Share Plan. As part of this
engagement, the Directors’ Remuneration Policy was presented to
key shareholders ahead of seeking approval at the Annual General
Meeting of the Group to be held in April 2014.
The Chairman and Senior Independent Director also met with a
number of shareholders to discuss strategy, governance and other
matters. Their comments were passed on to the Board by the
Chairman. The non-executive Directors are also available to meet
shareholders.
52 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
The Company’s major shareholders are listed, together with the
information required under the Disclosure and Transparency Rules
7.2.6, within the Report of the Directors on page 48.
Remuneration Committee
The Remuneration Committee comprises solely the independent
non-executive Directors of the Company and is chaired by Andrew
Szescila.
Board Committees
The Board has three main Committees to which it delegates
responsibility and authority:
Nomination Committee
Members of the Committee are Richard Hunting (Committee
Chairman), Dennis Proctor and the independent non-executive
Directors. The Committee has written terms of reference approved
by the Board, which are published on the Group’s website. The
role of the Committee includes leading the process for Board
appointments and determining the terms of new appointments.
The Committee also considers succession planning which takes
into account the experience, balance and skills required of Board
members. The Committee did not formally convene in the year;
however, as noted above, the Board discussed management
succession and diversity at its August meeting, where all key roles
were debated.
The Board has considered the recommendations of the Davies
Report (Women on Boards) and in 2012 issued its gender diversity
policy for Board appointments. Given the current size and balance
of experience of Hunting’s Board and the recent refreshing of the
Board’s independent non-executive Directors it is unlikely that in
the short term Hunting will be compliant with the recommendations
of the Davies Report and its update in 2013.
The Committee convened five times during the year and has
written terms of reference approved by the Board which are
published on the Group’s website. During the year, the Committee
reviewed its effectiveness and the Chairman reported these
findings to the Board.
Details of the Committee’s activities are contained within its Report
on pages 54 to 77. The Report follows the new disclosure
requirements published in 2013 and contains a Statement from the
Chairman of the Remuneration Committee, the Directors’
Remuneration Policy and an Annual Report on Remuneration.
Both the Policy and Annual Report will be tabled for a shareholder
vote at the Company’s Annual General Meeting in April 2014.
Audit Committee
The Audit Committee comprises exclusively of the independent
non-executive Directors of the Company and is chaired by John
Nicholas. Details of the Audit Committee’s activities are contained
within its report on pages 78 to 80.
By Order of the Board
However, in line with the Davies Report’s recommendations,
Hunting’s diversity policy commits the Group to:
– an embedded culture of equal opportunities for all employees,
Richard Hunting, C.B.E.
Chairman
6 March 2014
regardless of gender;
– require external recruitment consultants to submit their diversity
policies to the Group prior to appointment;
– ensure that external consultants appointed by Hunting submit
candidate shortlists comprising of an appropriate gender
balance for consideration by the Nomination Committee;
– a target of at least one female Director of the Company when
practicable; and
– a periodic review by the Nomination Committee of its progress
in complying with the Davies Report’s recommendations.
Hunting PLC 2013 Annual Report and Accounts 53
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Remuneration Committee Report
For the year ended 31 December 2013
“ During the year the Committee reviewed the remuneration
and incentive programmes in place for the executive
Directors and the senior management team, to ensure they
remain fairly remunerated for their contribution to the
continuing success of the Company.
The Committee is of the view that the principles and policies
encompassed within the following report are fitting and
appropriate to Hunting given its international spread of
operations and in particular its focus on the North American
market place. The Committee commends the Policy and the
Annual Report on Remuneration to you.
The Committee consulted with shareholders on all of these
proposals and following amendments provide full details of
the future Policy in the following report to be approved by
shareholders at the Company’s AGM in April 2014.”
Andrew Szescila, Chairman of the Remuneration Committee
Annual Statement from the Chairman of the
Remuneration Committee
Introduction
The Directors’ Remuneration Policy and Annual Report on
Remuneration that follow reflect the Remuneration Committee’s
(the “Committee”) work undertaken during the year, and their
commitment to comply with the requirements of the amended
Companies Act 2006 and the Large and Medium-sized Companies
and Groups (Accounts and Reports) (Amendment) Regulations
2013. The Directors’ Remuneration Policy (the “Policy”) sets out
the framework for Directors’ remuneration which will apply from
April 2014 subject to shareholder approval. The Annual Report on
Remuneration shows how the proposed Policy’s principles were
applied during 2013. Both the Policy and Annual Report on
Remuneration will be individually tabled for shareholder approval
at the Annual General Meeting (“AGM”) of the Company to be
held on 16 April 2014.
During the year the Committee reviewed the remuneration and
incentive programmes in place for the executive Directors and the
senior management team, to ensure they remain fairly remunerated
for their contribution to the continuing success of the Company.
An ongoing issue which faces the Committee is the ability to attract
and retain experienced executives in the geographic territories in
which the Company operates. Therefore, the Committee ensures
that appropriate competitor and market peers are identified when
reviewing relevant remuneration survey data. Following
consultation with external advisers and key shareholders, the
remuneration framework set out within the Policy and Annual
Report which follow reflect levels of remuneration which are
considered necessary to enable Hunting to compete in this market
place – the Committee fully endorses this framework.
54 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Major decisions and substantial changes to remuneration
made by the Committee in 2013
– Salary review – the Committee decided to increase the base
salary of the Finance Director to reflect his strong performance
in role and to bring his salary in line with Policy.
– Review of performance in 2013 – the fixed and variable
Following measurement of the Total Shareholder Return
performance condition, a zero vesting of the grants made in 2011
under the rules of the PSP was recorded. The 2011 awards to the
Chief Executive and Finance Director therefore lapsed with no
payments made to either executive.
components of remuneration reported within the Annual Report
on Remuneration have been reviewed by the Committee and
reflect Policy.
At 31 December 2013, the accumulated incentive pool under the
rules of the LTIP was $12.2m, resulting in awards of $2,674,732 and
$657,479 to the Chief Executive and Finance Director respectively.
Further details of the emoluments of the executive Directors can
be found within the Annual Report on Remuneration on pages 70
to 77.
The Committee is of the view that the principles and policies
encompassed within the following report are fitting and
appropriate to Hunting given its international spread of operations
and in particular its focus on the North American market place.
The Committee commends the Policy and the Annual Report on
Remuneration to you.
Andrew Szescila
Chairman of the Remuneration Committee
6 March 2014
– Design of the new 2014 Hunting Performance Share Plan
– following expiry of the 2004 Long Term Incentive Plan
(“LTIP”) and cancellation of the 2009 Performance Share Plan
(“PSP”), the Committee is tabling a new Hunting Performance
Share Plan (the “Hunting PSP”) which encompasses a number
of performance targets for approval at the AGM in 2014. The
Hunting PSP forms part of the Company’s ongoing Policy,
details of which are set out in the reports that follow.
– Design of the Directors’ Remuneration Policy – the Board
has reviewed the remuneration framework for both the
executive and non-executive Directors and has finalised the
future Policy to be approved at the AGM in 2014.
– Implementation of a Personal Performance Adjustor to the
Annual Bonus Plan – the Committee has reviewed the
mechanism to apply discretion to the Annual Bonus and are
introducing a personal performance adjustor which allows the
Annual Bonus to be reduced to zero or to be increased by a
factor of 1.25 times. The adjustor will be applied subject to the
Committee setting individual performance targets and their
delivery at the end of each financial year. However, the
Committee will not award a bonus above the current plan
maxima.
– Modified Stock Ownership Requirements – the Committee
has reviewed a number of mechanisms to enhance the retention
of shares under award to key employees and to align all award
participants with the long-term interests of shareholders. It is
proposed that the enhanced Stock Ownership Requirements be
introduced during 2014.
The Committee consulted with shareholders on all of these
proposals and following amendments provides full details of the
future Policy in the following report to be approved by
shareholders at the Company’s AGM in April 2014.
Performance and Context of Remuneration awarded in 2013
The Group reported underlying profit before tax of $196.1m which
was 98% of the Annual Budget approved by the Board in
December 2012. Return On Capital Employed was 94% of the
Annual Budget. Using the formulae contained within the approved
Annual Bonus Plan bonuses were paid of $647,285 and $238,684
to the Chief Executive and Finance Director respectively.
Hunting PLC 2013 Annual Report and Accounts 55
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Directors’ Remuneration Policy
Policy Overview
This report outlines the Directors’ Remuneration Policy (the
“Policy”) framework proposed by the Hunting Board for the
executive and non-executive Directors of the Company which will
be applied by the Company following approval by shareholders
with remuneration before this date being in line with the principles
of this Policy.
The Policy for executive Director remuneration is designed to
comply with the principles of the UK Corporate Governance Code
and amendments to the Companies Act 2006 regarding
remuneration and to ensure that each Director is attracted, retained
and motivated to promote and achieve the long-term success of
the Group. The Policy is divided between fixed and variable
incentives and is structured to link total reward to both corporate
and individual performance. The remuneration structures of the
Chief Executive and Finance Director are based on externally
benchmarked data aimed at providing the executive Directors with
competitive levels of remuneration.
Non-executive Director fees are set at levels which take into
account the time commitment and responsibilities of each role.
Given the small size of the Hunting Board, each non-executive
Director is required to give an above average time commitment to
Group matters, which is reflected in the annual fees paid. The fees
are benchmarked to other companies of a similar size, profile and
profitability and are reviewed annually by the executive Directors.
Fixed Emoluments
Fixed emoluments to the executive Directors comprise of base
salary, benefits including healthcare insurance, the provision of a
company vehicle and fuel, and pension contributions suitable to
the geographic location of the executive. Base salaries are aimed at
the market mid-point.
Variable Emoluments
Variable emoluments comprise of an Annual Bonus and
participation in a number of long-term incentive schemes, as
detailed in the following Policy.
The Remuneration Committee (the “Committee”) applies the
Group’s Budget, agreed annually at each December meeting of the
Board, to benchmark the performance-linked annual cash bonus
which is indexed to the Group’s actual performance against
Budget. From 2014, the bonus award may be subject to adjustment
through the application of a personal performance adjustor, which
recognises the delivery of individual targets set by the Committee.
56 Hunting PLC 2013 Annual Report and Accounts
Awards under the 2009 Performance Share Plan (“PSP”) begin to
vest when the Total Shareholder Return of the Company is at the
median of the peer group. Awards under the 2004 Long Term
Incentive Plan (“LTIP”) are designed to pay out when the increase
in average shareholder funds of the Group exceeds demanding
long-term growth targets. Existing awards to the executive
Directors for these long-term incentive schemes will continue to
2016, following measurement of the respective performance
conditions.
New 2014 Hunting Performance Share Plan (the “Hunting PSP”)
Following a review of the PSP and the LTIP and reflecting the
Committee’s drive to ensure the incentive plans in place remain fair
and demanding, a new long-term incentive plan, the Hunting PSP,
has been developed to replace both the PSP and LTIP. The
executive Directors will receive awards over Hunting shares which
will vest after three years, subject to performance conditions.
Awards under the Hunting PSP for the executive Directors will be
equally apportioned into three categories with each category
subject to a performance condition: (i) relative total shareholder
return (“TSR”), (ii) absolute growth in earnings per share (“EPS”)
and (iii) average return on capital employed (“ROCE”). Subject to
approval by shareholders, the first awards under the Hunting PSP
will be made to the executive Directors and senior managers of the
Group after the April 2014 Annual General Meeting, with the first
vesting of these awards to occur in 2017.
Enhanced Stock Ownership Requirements
In parallel to the introduction of the Hunting PSP, the Committee
has considered ways to enhance share ownership and improve the
alignment of participants in Hunting’s long-term incentive schemes
with shareholders. Subject to the approval of the Policy, enhanced
Stock Ownership Requirements will be implemented in Hunting’s
long-term incentive arrangements, with the Chief Executive
required to maintain a minimum holding of shares in the Company
equal to a market value of 500% of base salary; the Finance
Director a minimum holding of 200% of base salary and the
non-executive Directors a minimum holding of 100% of annual
fees. Other executives of the Group will be required to build and
maintain a minimum holding of shares in the Company equal to a
market value of between 100% to 200% of base salary. To achieve
these requirements the guidelines require the retention of all vested
share awards, following the payment of relevant taxes, until the
ownership level is achieved.
Amendments to the Policy
The oil and gas industry is increasingly a competitive market place,
therefore recruiting and retaining the right individuals to deliver
long-term shareholder growth is subject to increasingly challenging
market conditions. As a result, the Committee intends to keep the
Policy under review, and will make any necessary revisions only
after appropriate consultation and approval from shareholders has
been received.
Corporate Governance
Statement of Disclosure of Performance Targets
The annual performance-linked cash bonus plan is measured
against performance targets based on underlying profit before tax
(“PBT”) and ROCE values contained within the Group’s Annual
Budget. In the opinion of the Directors, this budget/target
information is commercially sensitive and would be prejudicial to
the competitive interests of the Group. Retrospective disclosures
on the corporate performance against the Annual Budget will be
provided in the Annual Report on Remuneration.
Remuneration Committee Discretion
The Committee has reviewed the policies for Director
remuneration and proposes that discretion within the new
framework will be limited to the following areas:
– annual base salary and fee reviews of the Directors;
– application of the personal performance adjustor to the annual
cash bonus;
– application of the annual cash bonus following the exit of
a Director;
– composition of the comparator group for the Hunting PSP;
– setting the performance targets for the Hunting PSP; and
– specific recruitment considerations if new Directors are appointed.
Where discretion is applied, the Committee will disclose the
rationale for the application of discretion. Further details are
provided within the following policy section.
Hunting PLC 2013 Annual Report and Accounts 57
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Directors’ Remuneration Policy continued
Executive Director Remuneration Policy Table
Fixed Emoluments
Remuneration Component – Base Salary
Purpose and Link to Strategy
Operation and Award Basis
Maximum
Notes
– Retain and reward executives with
the necessary skills to effectively
deliver the Company strategy.
– There is no prescribed maximum
N/A
annual increase. The Committee is
guided by the general increase for
the broader employee population,
but on occasions may need to
recognise, for example, development
in role, change in responsibility, and/
or specific retention issues.
– Base salaries are set at competitive
rates which take into account the
individual’s country of residence and
primary operating location as well as
companies in the same market
segment.
– Aimed at the market mid-point.
– Annual increases take into account
inflation in the UK, US and increases
across the total workforce.
– Relocation and tax equalisation
agreements are also in place for
employees working across multiple
geographic jurisdictions.
Remuneration Component – Pension Arrangements and Benefits
– Provide normal pension and benefit
schemes appropriate to their country
of residence.
– Each executive Director is provided
with healthcare insurance and a
company car with fuel.
– The Group contributes on behalf of
N/A
N/A
the Chief Executive (currently
resident in the US) to a US 401K tax
deferred savings plan and an
additional deferred compensation
scheme.
– The Group contributes on behalf of
the Finance Director (currently
resident in the UK) to a UK final
salary defined benefits pension
scheme.
58 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Executive Director Remuneration Policy Table continued
Variable Emoluments
Remuneration Component – Annual Performance-Linked Cash Bonus Plan
Purpose and Link to Strategy
Operation and Award Basis
Maximum
– To incentivise annual delivery of
financial and operational targets.
– High reward potential for exceeding
– Awards are made subject to plan rules
and to measurement against the Annual
Budget.
Chief Executive
– 200% of
base salary.
Notes
N/A
demanding targets.
Finance Director
– 150% of
base salary.
– Bonus is weighted 70% to budgeted
PBT and 30% to budgeted ROCE.
– Budgeted PBT for plan purposes is
before amortisation and items deemed
exceptional within the Annual Budget.
– Budgeted ROCE for plan purposes is
profit from operations before
amortisation and items deemed
exceptional within the Annual Budget
divided by the budgeted average capital
employed.
– Bonus begins to accrue when 80% of
the Budget targets are achieved.
– Level of bonus increases on a straight-
line basis from zero payment when 80%
of Budget is achieved to a maximum
when 120% of Budget is achieved.
– For an on target performance defined as
actual results equal to the Budget, the
Chief Executive is paid 100% of base
salary and the Finance Director is paid
75% of base salary.
– Bonus is not pensionable.
– The Committee implemented a personal
performance adjustor to the annual
bonus arrangements during 2014.
– The Committee has the discretion to
adjust the annual bonus using the
performance adjustor. The adjustor
range is from 0 to 1.25 times of the
annual bonus figure. The personal
performance targets linked to the
performance adjustor will be disclosed
on award of the bonus.
– Clawback provisions were introduced in
2010 to allow for the bonus to be
adjusted to zero.
Hunting PLC 2013 Annual Report and Accounts 59
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Directors’ Remuneration Policy continued
Executive Director Remuneration Policy Table continued
Variable Emoluments
Remuneration Component – Hunting PSP
Purpose and Link to Strategy
Operation and Award Basis
Maximum
– Recognition and reward to executive
Directors for the creation of shareholder
value over the longer term.
– This element provides full alignment to
shareholder interests.
Chief Executive
– 550% of
base salary.
Finance Director
– 450% of
base salary.
– Annual grant of shares.
– Vesting levels determined by Company
performance over a three year period
against (i) TSR of a bespoke peer group;
(ii) EPS growth; and (iii) average ROCE.
– Grant value of 450% of base salary for
the Chief Executive and 210% of base
salary for the Finance Director.
– Achievement of minimum performance
target results in a 25% vesting of any
element of the award.
– Awards subject to clawback and malus
provisions.
– The maximum award noted provides
the Committee with flexibility in cases
such as recruitment. The Committee has
set the award levels of the current
executive Directors and does not intend
to increase these further.
Notes
N/A
Remuneration Component – Stock Ownership Requirement
– To encourage the retention of shares
under award to the executive.
– To align the long-term interests of the
executive with shareholders.
N/A
N/A
– The target holding of the Chief Executive
is a target equal to the market value of
500% of base salary and for the Finance
Director 200% of base salary.
– All vested shares are to be retained,
following the payment of relevant taxes,
until the ownership requirement is
achieved.
– Directors have five years to achieve the
required holding level.
60 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Executive Director Remuneration Policy Table continued
Legacy Long-term Incentive Arrangements
2009 Performance Share Plan
Purpose and Link to Strategy
Operation and Award Basis
Maximum
Notes
– Recognition and reward to executive
– Annual grant of nil cost performance
Directors for the creation of shareholder
value over the longer term.
– This element provides strong alignment
with the interests of shareholders.
shares or options.
– Vesting levels determined by TSR
measured over three years against a
peer group.
– 40% of shares vest for a median
performance increasing on a straight-
line basis to 100% for a top quartile
performance.
– Face value of award to the Chief
Executive is 100% of base salary.
– Face value of award to the Finance
Director is 80% of base salary.
Chief Executive
– 200% of
base salary.
Finance Director
– 200% of
base salary.
2004 Long-Term Incentive Plan
– Recognition and reward to executive
– Awards are made based on the
Directors for the creation of shareholder
value over the longer term.
accruing of an incentive pool over
a three year period.
Chief Executive
– 350% of
base salary.
Finance Director
– 175% of
base salary.
– The incentive pool only accumulates if
increases to average shareholder funds
are achieved throughout the period.
– If the accruing incentive pool equals
zero across the period, no payments
are made.
– Chief Executive receives 35% of the
accumulated incentive pool, with actual
payout limited to a maximum of 350%
of base salary.
– Finance Director receives 15% of the
accumulated incentive pool with actual
payout limited to a maximum of 175%
of base salary.
– Awards under the
PSP, which are
subject to
performance
measurement, will
continue to vest up
to 2016 when the
final grants made in
2013 vest.
– The PSP which
operated between
2009 and 2013 will
be replaced by the
Hunting PSP subject
to shareholder
approval at the
Company’s Annual
General Meeting
(“AGM”) on 16 April
2014.
– Awards under the
LTIP will continue to
2016, when the final
grants made in 2013
vest.
– The LTIP which
operated between
2004 and 2013 will
be replaced by the
Hunting PSP subject
to shareholder
approval at the
Company’s AGM on
16 April 2014.
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Directors’ Remuneration Policy continued
Non-executive Director Remuneration Policy Table
The remuneration of the non-executive Directors as adopted by the Company is designed to reflect the time and commitment of each to
their respective roles.
Element
Purpose and link
to strategy
Operation
Fee detail
Maximum
Chairman’s fees
– To attract and
retain a
high-calibre
Chairman
by offering
a market
competitive
fee level.
– To attract
and retain
high-calibre
non-executive
Directors
by offering
a market
competitive
fee level.
Non-executive
Director fees
– The Chairman is paid a single
fee for all his responsibilities
including chairing the
Nomination Committee.
– Fees are determined by the
Board as a whole on
recommendation of the
executive Directors following
receipt of external fee
information and an
assessment of the time
commitment and
responsibilities involved.
– The non-executive Directors
are paid a basic fee. The
Chairmen of the main board
Committees and the Senior
Independent Director are
paid an additional fee to
reflect their extra
responsibilities.
– Non-executive Director fees
are determined by the Board
as a whole on
recommendation of the
executive Directors following
receipt of external fee
information and an
assessment of the time
commitment and
responsibilities involved.
– The non-executive Directors
do not participate in the
Group’s share plans and do
not receive any other
benefits.
– The current
fee for the
Chairman is
$302,789
(£193,500).
– Fees are
reviewed
annually in
December.
– The basic
Board fee is
$93,888
(£60,000)
with an
additional fee
of $15,648
(£10,000) for
the Audit and
Remuneration
Committee
Chairmen,
and for the
role of Senior
Independent
Director.
– Fees are
reviewed
annually in
December.
– The fees paid to the non-
executive Directors are
benchmarked to other UK
companies of a similar size
and profile to the Group.
– Given the small size of the
Board, each non-executive
Director is expected to give
an above average time
commitment to Group
matters and fees are based
on this increased
commitment.
– The Company’s Articles of
Association prescribe
aggregate maximum fees for
all non-executive Directors of
$782,400 (£500,000) per
annum.
Stock Ownership
Requirements
– To align the
– Non-executive Directors are
N/A
N/A
non-executive
Directors’
interests to
the long-term
interests of
shareholders.
required to build up a
holding of shares in the
Company equal to a market
value of 100% of the annual
fees paid and have five years
to achieve the required
holding level.
62 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Relevance to Employee Pay
The Policy described above provides an overview of the structure that also operates and applies to the most senior executives in the
Group.
While bonus and pensions arrangements are in place for most of the Group’s employees, lower aggregate remuneration operates at
below the executive Director and senior manager level with levels driven by market comparatives and the individual responsibilities of
each role.
The oil and gas industry operates in an increasingly competitive labour market globally and, to reflect this, the Group’s average employee
costs, including base salary, benefits and bonuses, in the year increased 1%. Average base salaries across the Group increased 1%
compared to 2012.
Choice of Performance Metrics
The corporate strategy includes promoting the long-term success of the Group by investing in its existing product and services portfolio
through capital investment or by acquisition and growing the business in a way that is aligned to the evolving global energy industry.
The performance of the executive Directors in executing this strategy is evaluated by the following key performance indicators (“KPIs”),
which drive the variable components of the executive Directors’ emoluments.
KPI
Element of remuneration
Reason for use
Underlying Profit before Taxation
Annual Bonus
Underlying Return on Capital Employed
Annual Bonus/Hunting PSP
Total Shareholder Return
PSP/Hunting PSP
Underlying Earnings Per Share
Hunting PSP
– PBT is a management KPI used to
measure the underlying performance of
the Group.
– PBT reflects the achievements of the
Group in a given financial year and
recognises sustained profitability
measured against an agreed Annual
Budget.
– ROCE is a management KPI used to
measure the underlying performance of
the Group.
– ROCE reflects the value created on
funds invested in the short and medium
term.
– To achieve sustained levels of
shareholder return over the long term.
– To achieve sustained levels of earnings
growth over the long term.
Taken together, the Committee believes that the executive Directors are appropriately incentivised to deliver both short and long-term
performance based on these metrics.
Single Figure Remuneration Definition
For the purposes of the Policy and Annual Report on Remuneration, the single figure remuneration presented comprises base salary,
benefits (including healthcare insurance and car benefits), tax equalisation, pension contributions incorporating where relevant the
prescribed HMRC multiplier, annual cash bonus and vested PSP and LTIP awards during the financial year (or where the performance
period has substantially completed). The single figure remuneration equates to Total Remuneration as shown on page 71 of the Annual
Report on Remuneration.
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Directors’ Remuneration Policy continued
Detailed Policy
Base Salaries and Fees
Base salaries and fees are reviewed annually. In considering appropriate salary levels for the executive Directors, the Committee takes
into account their experience and personal performance, the remuneration paid by comparable companies in terms of asset size,
revenues, profits, number of employees, market capitalisation and the complexity and international spread of Group operations, as well
as Group wide salary increases and applicable rates of inflation. Other relocation and taxation agreements are also in place for key
executives.
As part of the consultation process with major shareholders in 2013, the base salary of the Finance Director was reviewed. The
Committee concluded that in line with the Policy, his base salary should be increased towards the market mid-point. As a consequence
of this adjustment, the proposed long-term incentive awards to the Finance Director will be reduced to ensure his total emoluments,
including base salary, annual bonus and long-term incentives, remain at the market mid-point.
Base fee increases for the non-executive Directors are based on benchmarked market data for fees paid by comparable companies.
Pension
The Group contributes to the pension arrangements of both the Chief Executive and Finance Director.
Being a US based citizen, Dennis Proctor participates in the Group’s US 401K tax deferred savings plan, with the Group making annual
contributions to the plan equivalent to 2% of base salary at the current contribution limit. In addition, the Group contributed a figure
equivalent to 23% of his 2013 base salary to a deferred compensation scheme. In practice this scheme is administered and operated on a
money purchase basis.
Richard Hunting and Peter Rose are members of the Hunting Pension Scheme (the “Scheme”), which is a defined benefit pension
scheme. The retirement age for the Directors under the Scheme is 60 and they are entitled to, subject to certain limits, a pension of up to
two thirds of final salary. Pensionable salary is the annual salary less an amount equal to the State Lower Earnings Limit.
Richard Hunting contributed 8.5% of his pensionable salary up until his Scheme retirement date of 31 July 2006. Peter Rose contributes a
similar proportion of his salary to the Scheme. The Scheme provides all members with a lump sum death in service benefit of four times
base salary and a spouse’s pension of two thirds of the member’s pension on the member’s death. Bonuses and benefits do not qualify as
pensionable salary. Mr Rose is able to draw his pension on an unreduced basis from age 57 with the consent of the Company.
Benefits
Other benefits provided to the executive Directors as part of their remuneration package include the provision of appropriate health
cover, life and disability insurance, car and fuel benefits.
Annual Performance-Linked Cash Bonus
An annual performance-linked cash bonus plan is in place for the executive Directors. The plan, which is not pensionable, is designed to
provide an incentive reward for performance and reflects the competitive markets in which the Group conducts its business.
In 2014 the bonus plan will be amended to allow the Committee to incorporate a personal performance adjustor to the bonus, ranging
from 0% to 125% of the award value. The Committee is committed to publishing the personal targets set for the executive Directors and,
where the personal performance adjustor is applied, will provide detailed disclosures to investors. This amendment allows the Committee
to reduce the formula-driven bonus to zero or increase the bonus up to 1.25 times the award value but not greater than the plan maxima.
Long-term Performance Related Incentives
The Group operated three long-term incentive plans during the year all of which align the incentive packages of executives with the
long-term interests of shareholders. The Hunting PSP is being proposed to shareholders, which will replace awards under the PSP and
LTIP plans, details of which are set out below.
1. Performance Share Plan
The PSP operated between 2009 and 2013 and will now, subject to shareholder approval, be cancelled and replaced by the
Hunting PSP.
Awards under the PSP were granted annually and only vest if demanding performance conditions based on returns to shareholders are
met. Awards granted under the PSP, which are subject to a three year performance period, are based on the Group’s TSR performance
relative to the constituent members of the Dow Jones US Oil Equipment and Services and the DJ STOXX TM Oil Equipment and Services
sector indices and if the Committee determines the Group’s financial performance to be satisfactory. These indices were considered by
the Committee to be appropriate as they compare the Group’s performance against other companies in the oil and gas services sector.
64 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Awards vest subject to the schedule outlined below:
Group’s TSR against the TSR of the members of the Comparator Group
Upper quartile
Between upper quartile and median
Median
Below median
% of the award that vests
100%
On a straight-line basis between 40% and 100%
40%
0%
2. Long-Term Incentive Plan
The LTIP, which operated between 2004 and 2013, was intended to link key executives’ remuneration to the long-term success and
performance of the Group. The plan has now expired and no further awards will be granted under the plan. Subject to shareholder
approval, the plan is being replaced by the Hunting PSP.
The LTIP is a performance-linked plan with an incentive pool, which is calculated using the sum of the Group’s after tax operating
income after deducting a 7% charge on average shareholders funds for the after tax cost of capital. Determination of the incentive pool
incorporates two components, the first being 2% of the absolute value added, and the second being 5% of the incremental value added.
These performance conditions align the interests of the executives with those of the Group and its shareholders and will only produce
value to the participants if value is created for the Group.
Awards are determined for each participant at the beginning of a three year performance cycle and are settled at the end of each cycle
either in shares or in cash. The award for each participant is calculated as a percentage of the incentive pool resulting from the
performance of the business over the performance cycle, as determined by the Committee.
3. Executive Share Option Plan (“ESOP”)
The Group operated an ESOP between 2001 and 2008 to provide long-term incentives for executive Directors and senior executives of
the Group. From 2009, executive Directors are granted share-based awards under the PSP in place of grants under the ESOP. No further
grants will be made under the ESOP.
Hunting PSP
The Committee has reviewed the remuneration arrangements for the executive Directors and after considering recent recommendations
by UK institutional investor groups, has decided to cancel the PSP and to replace it with an alternative plan at the same time as the LTIP
expires. In place of these two long-term incentive plans, a single plan has been prepared by the Committee for approval by shareholders
in April 2014, with the first grants under the Hunting PSP to be made once shareholder approval has been obtained.
Certain key shareholders were consulted on the new plan’s implementation during 2013.
Shares awarded to the executive Directors under the Hunting PSP are divided equally into the three tranches. Each tranche is subject to a
three year vesting period, and is also subject to a performance condition. The three performance conditions are listed below:
– Relative TSR.
– Absolute growth in EPS.
– Average ROCE.
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Directors’ Remuneration Policy continued
More detail on the performance conditions is provided in the following table:
% of award
Performance condition
Detail
33.33
TSR
– The Group’s TSR will be measured over a three year period against a bespoke peer group
33.33
Underlying EPS
33.33
Underlying ROCE
selected from the same global market sector as Hunting.
– 25% of the award will vest if a median performance against the peer group is achieved,
increasing on a straight-line basis to 100% if a top quartile performance against the peer
group is achieved.
– The Group’s growth in EPS will be measured across the three year vesting period.
– 25% of the award will vest if earnings growth achieves a minimum growth target set by
the Committee increasing on a straight-line basis to 100% if a stretch growth target set by
the Committee is achieved.
– The Group’s ROCE will be measured across the three year vesting period.
– 25% of the award will vest if reported ROCE achieves a minimum target set by the
Committee increasing on a straight-line basis to 100% if a stretch target set by the
Committee is achieved.
The respective performance conditions will be measured at the end of the three year vesting period and awards to the executive
Directors will be proportional to the total vesting level achieved.
The face value of the grant proposed for the Chief Executive is 450% of base salary and 210% of base salary for the Finance Director.
Dividends declared by the Company during the vesting period are added to the awards once the final vesting levels have been determined.
Executive Director Service Contracts
All existing executive Directors’ Service Contracts are rolling one year agreements and contain standard provisions allowing the
Company to terminate summarily for cause, such as gross misconduct.
The Chief Executive entered into an Employment Agreement with Hunting Energy Services Inc., a wholly owned subsidiary of the Group,
on 7 February 2001. This Agreement is governed by the laws of the State of Delaware, USA. Under the terms of the Agreement both
Hunting Energy Services Inc. and the Chief Executive are required to give one year’s notice of termination.
The Agreement contains a pay in lieu of notice clause, which provides for payment of base salary, up to a maximum of one year, a
performance bonus if earned and vacation pay based on an annual entitlement of five weeks. There are special provisions on a change
of control. These provide for payment of an amount equal to the total of the base salary for one year and the average Performance Bonus
over the immediately preceding two year period. In addition, the Chief Executive would be entitled to continue to participate in the
Group insurance programmes for 18 months following the change of control, and, unless otherwise provided in the relevant agreement,
all share-based awards granted to him shall immediately accelerate and become exercisable as of the date of change of control.
The Finance Director entered into a Service Agreement with the Company on 23 April 2008. Under the terms of the Service Agreement
both the Company and the Director are required to give one year’s notice of termination. The Company reserves the right to pay the
Finance Director in lieu of notice (whether given by the Company or by him) which provides for payment of base salary up to a
maximum of one year and bonus, which he would have been entitled to receive under his contract between the date of termination and
the earliest date the appointment could otherwise be lawfully terminated, less income tax and National Insurance Contributions. The
Company also has the option to put the Finance Director on paid leave of absence following payment of a sum equivalent to salary and
bonus (based on the previous twelve month period), subject to him complying with the terms of his Service Agreement. These conditions
also apply on termination following a change of control and, in addition, the Finance Director would be entitled to an acceleration of all
share-based awards which would immediately vest at the date of the change of control.
The Company has authorised the executive Directors to undertake non-executive directorships outside of the Group provided these do
not interfere with their primary duties. During the year neither executive Director held any external positions.
Non-executive Director Letters of Appointment
On appointment each non-executive Director is provided with a letter of appointment which sets out the responsibilities and time
commitments for the role. Additional duties, as requested by the Nominations Committee, including chairing a Board Committee, are
also incorporated into the letters of appointment and fees paid. Non-executive Director appointments are usually for a fixed three year
term, which can be terminated by either party at any time.
66 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Payment for Loss of Office
The Committee has considered the Company’s policy on remuneration for executive Directors leaving the Company and is committed to
applying a consistent approach to ensure that the Company pays no more than is necessary. The loss of office payment policy subject to
existing Service Contract agreements is generally aligned with market practice and depends on whether the departing executive Director
is, or is deemed to be treated as, a “good leaver” or “bad leaver”. A good leaver is defined as an employee who has ceased to be
employed by the Group due to death, ill-health, injury, disability, redundancy, the employee’s company ceasing to be a Group member or
for any other reason, if the Committee so decides.
In the case of a good leaver the policy normally allows:
– payment in lieu of notice equal to twelve months’ base salary, pension supplement and contractual benefits;
– the payment of a bonus for the period worked subject to the achievement of the relevant performance conditions;
– any unvested long-term incentives to vest subject to the achievement of the performance conditions and pro-rated based on the
period of service.
If an employee departs the Group for any other reason than those specified in the good leaver definition above then he/she is treated as
a bad leaver and unvested long-term incentives lapse immediately on cessation of employment. The Committee however in respect of
bad leavers, retains discretion to satisfy bonus payments subject to performance conditions and pro-rating.
New Director Policies
Appointment of New Directors
As the Board of Hunting is refreshed, with new executive and non-executive Director appointments being made, the policy for
remuneration for the new Board members, will align to those detailed above.
Hunting needs to be able to attract and retain the best executives and non-executive Directors in the market place. The Remuneration
Committee believes that the framework now in place will enable the Company to achieve its recruitment aims.
For executive Director appointments the fixed component of the total emoluments made will target the market mid-point, subject to
geographic considerations and the specific labour markets of the candidate. The Service Contracts will be rolling one year agreements
with standard provisions. The fixed components of emoluments will include base salary including any appropriate relocation or tax
equalisation agreements, benefits including healthcare insurance, pension contributions and car benefits and other components deemed
necessary to secure an appointment. The variable components to the emoluments will be implemented in line with the policies above,
subject to any future amendments to these arrangements being approved by shareholders. Annual Performance-Linked Cash Bonus
arrangements will include awards up to 150% and 200% of base salary for the new Finance Director and Chief Executive respectively.
The maximum awards under the Hunting PSP will be up to 450% and 550% of base salary for the new Finance Director and Chief
Executive respectively. The Committee anticipates market standard change of control provisions within new Service Contracts.
In addition, for new appointees the Committee may offer additional cash and/or share-based elements when it considers these to be in
the best interests of the Company (and therefore shareholders). Any such payments would take account of remuneration relinquished
when leaving the former employer and would reflect the nature, time horizons and performance requirements attaching to that
remuneration. Shareholders will be informed of any such payments at the time of appointment.
For non-executive Director appointments, benchmarked fees to companies of similar size and profile to Hunting will be applied.
Hunting PLC 2013 Annual Report and Accounts 67
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Directors’ Remuneration Policy continued
Remuneration Scenarios for Executive Directors
The total remuneration of the executive Directors under current arrangements for a fixed, target and maximum performance is presented
in the chart below.
Fixed
Annual Bonus
PSP
LTIP
Chief Executive
Maximum
Target
17%
29%
26%
13%
44%
$5,978k
22%
11%
38%
$3,495k
Fixed
100%
$1,011k
Finance Director
Maximum
Target
27%
42%
27%
14%
32%
$2,076k
22%
11%
25%
$1,315k
Fixed
100%
$554k
Note: these charts are based on 2013 remuneration and are indicative as share price movement and dividend accruals have been
excluded. Assumptions made for each scenario are as follows:
– Fixed: latest known salary, benefits and pension as shown in the single figure table.
– Target: fixed remuneration plus half of maximum annual cash bonus opportunity plus 50% vesting of awards under the PSP plus
50% vesting of awards under the LTIP.
– Maximum: fixed remuneration plus maximum annual cash bonus opportunity plus 100% vesting of all long-term incentives.
The Finance Director is paid in Sterling and the equivalent total remuneration scenarios are as following – fixed £354k; target £840k and
maximum £1,326k.
The Hunting PSP, subject to approval by shareholders in April 2014, is proposed to replace the PSP and the LTIP.
The remuneration scenarios of the executive Directors under future arrangements, if the Hunting PSP is implemented, are as follows:
Fixed
Annual Bonus
Hunting PSP
Chief Executive
Maximum
Target
17%
29%
26%
57%
$5,978k
22%
49%
$3,495k
Fixed
100%
$1,011k
Finance Director
Maximum
Target
28%
44%
30%
42%
$2,266k
24%
32%
$1,449k
Fixed
100%
$632k
Note: these charts are indicative as share price movement and dividend accruals have been excluded. Assumptions made for each
scenario are as follows:
– Fixed: proposed 2014 salary (for the Finance Director) and latest known benefits and pension as shown in the single figure table.
– Target: fixed remuneration plus half of maximum annual cash bonus opportunity plus 50% vesting of awards under the Hunting PSP.
– Maximum: fixed remuneration plus maximum annual cash bonus opportunity plus 100% vesting of all long-term incentives.
68 Hunting PLC 2013 Annual Report and Accounts
The Finance Director is paid in Sterling and the equivalent total remuneration scenarios are as following – fixed £404k; target £926k and
maximum £1,448k.
Consideration of Employment Conditions Elsewhere in the Group
The Committee considers the general basic salary increases for the broader employee population when determining the annual salary
increases for the executive Directors. Employees have not been consulted in respect of the design of the Company’s senior executive
remuneration policy.
Shareholder Consultation and Feedback
The Committee consulted with major shareholders on the Policy and the Hunting PSP in the final quarter of 2013. Following this
consultation, minor revisions were made to the Policy and the proposals for the Hunting PSP. The Policy, the Annual Report on
Remuneration and the Hunting PSP will be tabled separately for approval by shareholders at the Company’s AGM on 16 April 2014.
The Committee designs the Policy to be in line with Hunting’s strategic objectives but also takes into account shareholder feedback and
the views of investor bodies.
Andrew Szescila
Chairman of the Remuneration Committee
6 March 2014
Hunting PLC 2013 Annual Report and Accounts 69
Corporate GovernanceStrategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Annual Report on Remuneration
Introduction
The principles of the Directors’ Remuneration Policy (the “Policy”) detailed on pages 56 to 69 have been in operation throughout 2013.
The Remuneration Committee (the “Committee”) will continue to implement these new policy proposals throughout 2014, subject to
shareholder approval, which will include the introduction of awards under the proposed new 2014 Hunting Performance Share Plan
(the “Hunting PSP”).
Role, Membership and Attendance
The Committee is responsible for setting the remuneration of the executive Directors. Remuneration of the non-executive Directors is
agreed by the Board as a whole.
The Chairman and Chief Executive are consulted on proposals relating to the remuneration of the Finance Director and designated senior
management and, when appropriate, are invited by the Committee to attend meetings but are not present when their own remuneration
is considered.
The role of the Committee is set out in its terms of reference which are reviewed annually and can be found on the Group’s website
www.huntingplc.com. The Committee met five times during the year with all members attending all meetings.
During the year the members of the Committee were:
Director
Andrew Szescila
John Hofmeister
John Nicholas
Latest appointment date
Unexpired term as at 6 March 2014
16 September 2011
29 August 2012
29 August 2012
6 months
18 months
18 months
External Advisers
During the year, New Bridge Street, a trading name of Aon Hewitt Ltd, and Pearl Meyer and Partners were engaged by the Committee to
provide remuneration consultancy services. Both firms, whose initial appointment was subject to a formal tender process, are regarded
as independent having been appointed by the Committee and acting under direction of the Committee.
The total cost of advice to the Committee over the year to 31 December 2013 was $279,747 and is higher than normal as it reflects fees
paid in respect of the review of remuneration, subsequent development of proposals and in complying with new remuneration reporting
and disclosure requirements.
Shareholding Voting at 2013 Annual General Meeting (“AGM”)
At the AGM of the Company held in April 2013, the resolution to approve the 2012 Remuneration Committee Report received the
following votes from shareholders:
For
Discretion
Against
Votes withheld*
Total votes cast
Number of votes
89,551,126
45,659
25,531,104
491,120
115,619,009
% of votes cast
77.8
–
22.2
n/a
100.0
* A vote withheld is not a vote in law and is not included in the calculation of the % of votes cast.
The votes against the resolution to approve the 2012 Remuneration Committee Report reflect certain legacy elements of the Company’s
remuneration policies, including the threshold vesting of awards under the 2009 Performance Share Plan (“PSP”) and the use of
discretion in respect of bonus awards to the executive Directors.
The Committee believes that the Policy submitted to shareholders for approval addresses these concerns.
70 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Director Remuneration (audited)
2013
Executives
Dennis Proctor
Peter Rose
Non-executives
John Hofmeister
Richard Hunting
John Nicholas
Andrew Szescila
Total
2012
Executives
Dennis Proctor
Peter Rose
Non-executives
John Hofmeister
Richard Hunting
John Nicholas
Andrew Szescila
Total
Fixed remuneration
Variable remuneration
Base
salary/fees1
$’000
Benefits2
$’000
Pension3
$’000
Sub total
$’000
Annual
cash bonus4
$’000
PSP Awards6
$’000
LTIP Awards8
$’000
Sub total
$’000
Other
remuneration
$’00010
Total
remuneration
2013
$’000
764
376
110
303
110
110
54
36
–
–
–
–
193
142
1,011
554
647
239
–
–
–
–
110
303
110
110
–
–
–
–
1,773
90
335
2,198
886
–
–
–
–
–
–
–
2,675
657
3,322
896
109
–
4,442
1,450
–
–
–
–
–
–
–
–
–
–
–
–
110
303
110
110
3,332
4,218
109
6,525
Fixed remuneration
Variable remuneration
Base
salary/fees1
$’000
Benefits2
$’000
Pension3
$’000
Sub total
$’000
Annual
cash bonus5
$’000
PSP awards7
$’000
LTIP awards9
$’000
Sub total
$’000
Other
remuneration
$’00010
Total
remuneration
2012
$’000
742
369
111
308
111
111
57
34
–
–
–
–
191
–
–
–
–
–
990
403
111
308
111
111
1,113
476
653
269
2,597
647
4,363
1,392
144
–
5,497
1,795
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
111
308
111
111
1,752
91
191
2,034
1,589
922
3,244
5,755
144
7,933
Notes to table:
1. Executive Directors’ salaries increased by 3% from 2012 to 2013.
2. Benefits include the provision of healthcare insurance, a company car and fuel benefits.
3. Dennis Proctor’s single figure pension remuneration represents the total Company contributions paid to his US pension arrangements which, in practice, are administered and
operated on a money purchase basis. Peter Rose is a member of a defined benefit pension scheme and the single figure pension remuneration has been calculated in a consistent way
for 2012 and 2013 in accordance with the regulations and represents 20 times the increase in his accrued pension over 2013 and 2012 after allowing for CPI inflation and deducting
his own pension contributions. The 2012 comparator is nil due to the nature of the tax rules, the timing of the calculation and how these factors interact with the calculation of the
single pension remuneration figure under the new directors’ disclosure requirements.
4. The bonus is comprised 70% based on a Profit Before Tax (“PBT”) target and 30% based on a Return on Capital Employment (“ROCE”) target. In 2013, the PBT and ROCE targets
achieved were 98% and 94% of those Annual Budget items respectively, leading to bonus payments equating to 85% of base salary for the Chief Executive and 64% of base salary for
the Finance Director.
5. The bonus is comprised 70% based on a PBT target and 30% based on a ROCE target. In 2012, the PBT and ROCE targets exceeded the Annual Budget by 14% and 2% respectively,
leading to bonus payments equating to 150% of base salary for the Chief Executive and 112% of base salary for the Finance Director. The Committee applied discretion to the bonus
award to the Finance Director, with an additional payment of $59,857 for achieving personal performance targets.
6. The 2011 awards under the PSP had a 3 year performance period to 24 February 2014 and are included in 2013 as a substantial portion of the performance period was completed at
the financial year end. The awards were measured on 24 February 2014 and are subject to the performance conditions specified on pages 64 and 65, which resulted in a zero vesting.
No payments were therefore made to the Executive Directors.
8.
7. The 2010 awards under the PSP with a 3 year performance period to 25 February 2013 partially vested on 7 March 2013 at 65.9% following an above median performance. The
respective payments were determined as per the PSP rules summarised on pages 64 and 65 of the Policy. Dennis Proctor received 46,625 shares and Peter Rose received 19,196
shares. The quarter-up price on the date of vesting was 898.62p. Dividends declared over these shares during the performance period were also paid to the Chief Executive and
Finance Director totalling $26,819 and $11,041 respectively and are included in the PSP award figure. The £/$ exchange rate on the payment date of 14 March 2013 was 1.494.
In accordance with the rules under the 2004 Long-term Incentive Plan (“LTIP”) and the three year cycle ending 31 December 2013, the accumulated incentive pool totalled $12.2m,
resulting in an entitlement of $2.7m to Dennis Proctor and an entitlement of $0.7m to Peter Rose. Under the rules of the LTIP, Dennis Proctor is entitled to 35% of the accumulated
incentive pool, while Peter Rose is entitled to 15% of the incentive pool. The maximum levels of award to Dennis Proctor and Peter Rose are capped at 350% and 175% of base salary
respectively.
In accordance with the rules under the LTIP and the three year cycle ending 31 December 2012, the accumulated incentive pool totalled $9.2m, resulting in a payment of $2.6m to
Dennis Proctor and a payment of $0.6m to Peter Rose. Under the rules of the LTIP, Dennis Proctor is entitled to 35% of the accumulated incentive pool, while Peter Rose is entitled to
15% of the incentive pool. The maximum levels of award to Dennis Proctor and Peter Rose are capped at 350% and 175% of base salary respectively.
9.
10. Other remuneration represents additional UK tax payable under a tax equalisation agreement.
Hunting PLC 2013 Annual Report and Accounts 71
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Annual Report on Remuneration continued
The remuneration of the Chairman, Peter Rose and the non-executive Directors is originally denominated in Sterling and is as follows:
2013
Executives
Peter Rose
Non-executives
Richard Hunting
John Hofmeister
John Nicholas
Andrew Szescila
2012
Executives
Peter Rose
Non-executives
Richard Hunting
John Hofmeister
John Nicholas
Andrew Szescila
Fixed remuneration
Variable remuneration
Base
salary/fees
£’000
Benefits
£’000
Pension
£’000
Sub total
£’000
Annual
cash bonus
£’000
PSP awards
£’000
LTIP awards
£’000
Sub total
£’000
Total
remuneration
£’000
240
194
70
70
70
23
91
–
–
–
–
–
–
–
–
354
194
70
70
70
153
–
–
–
–
–
–
–
–
–
420
573
–
–
–
–
–
–
–
–
927
194
70
70
70
Fixed remuneration
Variable remuneration
Base
salary/fees
£’000
Benefits
£’000
Pension
£’000
Sub total
£’000
Annual
cash bonus
£’000
PSP awards
£’000
LTIP awards
£’000
Sub total
£’000
Total
remuneration
£’000
233
194
70
70
70
21
–
–
–
–
–
–
–
–
–
254
194
70
70
70
300
180
408
888
1,142
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
194
70
70
70
Salary and Fees
In December 2012, the executive Directors reviewed the non-executive Directors’ fees, following receipt of benchmarked data from
New Bridge Street. The review resulted in no changes to the fees payable in 2013.
In March 2013, the Committee increased the 2013 base salaries of the executive Directors by 3% over those paid in 2012, following
receipt of benchmarked UK and US data from New Bridge Street and Pearl Meyer.
Pensions (audited)
Dennis Proctor is a member of a deferred compensation scheme in the US, which is anticipated to provide a cash lump sum on his
retirement. In practice, this scheme is administered and operated on a money purchase basis. In 2013, the Group contributed $177,908
(2012 – $175,733) to that arrangement. There are no additional benefits provided on early retirement from this arrangement. The Group
also contributed $15,300 in 2013 (2012 – $15,000) to his US 401K tax deferred savings plan.
Peter Rose is a member of the defined benefit section of the Hunting pension scheme. His accrued pension as at 31 December 2013
amounted to $144,000 p.a. (2012 – $134,000 p.a.) which includes a temporary pension of $9,000 p.a. (2012 – $8,000 p.a.). He is able to
retire on 24 October 2018 age 60, his normal retirement age in that scheme, without any reduction on his main scheme benefits
(although there is a small part of his pension that is payable only from age 62 without reduction). With Company consent Peter Rose is
able to retire from age 57 without any actuarial reduction for early retirement applied to his accrued pension.
72 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Annual Performance-Linked Cash Bonus Plan
The annual performance-linked cash bonus plan entitles the executive Directors to cash bonus payments when the actual financial
results of the Group achieve preset financial targets based on the Group’s Annual Budget. The 2013 actual results were 98% of budgeted
PBT and 94% of ROCE leading to a cash bonus payment of $647,285 for Dennis Proctor and $238,684 (£152,533) for Peter Rose. The
amounts paid reflect 85% and 64% of the base salaries for Dennis Proctor and Peter Rose respectively.
2011 PSP Vesting (audited)
The 2011 awards granted under the PSP were measured by New Bridge Street on 24 February 2014 and resulted in a zero vesting. The
2011 share grants to the Chief Executive and Finance Director duly lapsed with no payments made to either executive Director.
2010 PSP Vesting (audited)
The 2010 awards granted under the PSP were measured by New Bridge Street on 25 February 2013 and resulted in a partial vesting of
65.9%. The vesting date was 7 March 2013. Vesting levels were calculated in accordance with the PSP rules summarised on pages 64
and 65. Following this, Dennis Proctor received 46,625 shares and Peter Rose received 19,196 shares and a cash sum equivalent to the
dividends declared over these shares during the vesting period. The quarter-up price on the date of vesting was 898.62p. Details of the
2010 award which vested to the executive Directors are as follows:
Director
Dennis Proctor
Peter Rose
Number
of shares
awarded in
2010
70,751
29,129
Value of
vested award,
(excluding
dividends)
$
Number of
shares vested
in 2013
Value of
dividends
paid
$
Total value of
vested award
$
46,625
19,196
625,962
257,715
26,819
11,041
652,781
268,756
2013 PSP Grants
On 20 March 2013, the Committee approved the allocation of nil cost share awards to Dennis Proctor and nil cost options to Peter Rose
under the rules of the PSP. Awards will vest on 20 March 2016, subject to a median (or above) TSR performance being achieved
against Hunting’s relevant peer group. For further information on the performance criteria please refer to pages 64 and 65. Details of the
grant are as follows:
Director
Dennis Proctor
Peter Rose
Award as
% of
base salary
Number
of shares
awarded
Face value
of minimum
award (vesting
at 40%)
$
Face value
of maximum
award (vesting
at 100%)
$
100% 52,516
80% 21,119
305,684
120,223
764,209
300,558
The face value of the 2013 award is based on the closing mid-market price on 19 March 2013 which was 909.5p.
2013 LTIP Vesting (audited)
On 31 December 2013, the 2011 award under the LTIP for the three year period commencing 1 January 2011 was measured in
accordance with the plan rules and resulted in an accumulated incentive pool of $12.2m. The executive Directors were awarded the
following:
Director
Dennis Proctor
Peter Rose
% of
incentive pool
awarded
Value of
award
$
Award as
% of
base salary
35% 2,674,732
15% 657,479
350
175
Hunting PLC 2013 Annual Report and Accounts 73
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Annual Report on Remuneration continued
2013 LTIP Grants
Executive Directors and some senior executives are invited to participate in the Company’s LTIP, with all awards subject to the
performance conditions outlined in the Policy on page 65. Awards are settled at the end of each performance cycle in cash or shares.
The determination of whether to deliver benefits under the LTIP in cash or shares is not made until after the awards vest.
Awards made to Dennis Proctor and Peter Rose for the three year performance cycle period ending 31 December 2013, 2014 and 2015
are summarised as follows:
Director
Dennis Proctor
Peter Rose
Interest in
three year
performance
cycle awarded
February 2011
and vesting
31 December
2013
(at 1 January
2013)
Interest in
three year
performance
cycle awarded
March 2012
and vesting
31 December
2014
(at 1 January
2013)
Interest in
three year
performance
cycle awarded
March 2013
and vesting
31 December
2015
(at 1 January
2013)
35%
15%
35%
15%
35%
15%
The award granted on 7 March 2013 for the three year performance cycle ending on 31 December 2015 is the last award under the LTIP.
Subject to shareholder approval, awards will be replaced by the Hunting PSP, detailed in the Policy on pages 65 and 66.
Payments to Past Directors and for Loss of Office (audited)
During the year no payments were made to past Directors in the normal course of business or for loss of office.
Directors’ Shareholdings, Ownership Policy and Share Interests (audited)
The interests of the Directors in the issued Ordinary shares in the Company are as follows:
Director
Non-executive Chairman
Richard Hunting1
as trustee
as director of Hunting Investments Limited
Executives
Dennis Proctor1
Peter Rose1
Non-executives
John Hofmeister1
John Nicholas1
Andrew Szescila1
At
31 December
2013
At
31 December
2012
463,306
979,049
10,884,743
678,306
1,105,339
10,884,743
1,267,097
52,410
1,220,472
43,196
10,000
5,000
10,000
5,000
5,000
5,000
1. Beneficial share ownership are those Ordinary shares owned by the Director or spouse which he is free to dispose of.
There have been no changes to the Directors’ share interests in the period 31 December 2013 to 6 March 2014.
74 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
In 2014, the Group will implement a share ownership policy which requires Directors and certain senior executives within the Group to
build up shares to a certain multiple of their base salary or fee. The multiple takes into account the post tax value of vested but
unexercised share awards or options.
The proposed required shareholding of the respective Director and the current shareholding as a % of base salary as at 31 December
2013 is presented below:
Achieved value of holding in
shares including the post tax
value of vested but unexercised
share awards and options
expressed as a % of
base salary or fee as at
31 December 2013
Required % of
base salary or fee
500
200
100
100
100
100
Director
Dennis Proctor
Peter Rose
Richard Hunting
John Hofmeister
John Nicholas
Andrew Szescila
2,555
237
1,951
116
58
116
Scheme
ESOP
ESOP
ESOP
ESOP
ESOP
PSP
PSP
PSP
PSP
ESOP
ESOP
ESOP
ESOP
PSP
PSP
PSP
PSP
Directors have five years from 1 January 2014 in which to address any shareholding multiplier shortfall.
The interests of executive Directors over Ordinary shares of the Group under the ESOP and the PSP are set out below:
The vesting of options and awards are subject to performance conditions set out within the Policy on pages 64 and 65.
Director
Dennis Proctor
Sub total
Sub total
Total
Peter Rose
Sub total
Sub total
Total
Interests at
1 January 2013
Options/
awards
granted in year
Options/
awards
exercised/
vested in year
Options/
awards lapsed
in year
Interests at
31 December
2013
Exercise
price
p
Date
from which
exercisable/
vesting
Expiry
date
309,705
171,742
104,178
64,688
55,449
705,762
70,751
57,295
52,103
–
–
–
–
–
–
–
–
–
–
–
–
–
– 309,705+
– 171,742+
– 104,178+
64,688+
–
55,449+
–
–
705,762
116.9 31.03.07 30.03.14
220.7 09.03.08 08.03.15
383.0 08.03.09 07.03.16
640.0 06.03.10 05.03.17
784.5 04.03.11 03.03.18
–
–
–
52,516
(46,625)
–
–
–
(24,126)
–
–
–
–
57,295^
52,103^
52,516^
nil 26.02.13
nil 25.02.14
nil 17.04.15
nil 20.03.16
–
–
–
–
180,149
52,516
(46,625)
(24,126) 161,914
885,911
52,516
(46,625)
(24,126) 867,676
29,454
18,277
15,000
21,670
84,401
29,129
23,241
20,953
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21,119
(19,196)
–
–
–
(9,933)
–
–
–
29,454+
18,277+
15,000+
21,670+
84,401
–
23,241~
20,953~
21,119~
73,323
21,119
(19,196)
(9,933)
65,313
157,724
21,119
(19,196)
(9,933) 149,714
220.7 09.03.08 08.03.15
383.0 08.03.09 07.03.16
640.0 06.03.10 05.03.17
784.5 04.03.11 03.03.18
–
nil 26.02.13
nil 25.02.14 24.02.21
nil 17.04.15 16.04.22
nil 20.03.16 19.03.23
+ Vested and currently exercisable.
^ Nil cost share awards which are not yet vested or exercisable and still subject to the performance conditions being measured in accordance with the PSP rules.
~ Nil cost share options which are not yet vested or exercisable and still subject to the performance conditions being measured in accordance with the PSP rules.
Hunting PLC 2013 Annual Report and Accounts 75
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Annual Report on Remuneration continued
Executive Director Remuneration and Shareholder Returns
The following chart compares the TSR of Hunting PLC between 2008 and 2013 to the DJ Stoxx TM Oil Equipment, Services and
Distribution and Dow Jones US Oil Equipment and Services indices.
In the opinion of the Directors, these indices are the most appropriate indices against which the shareholder return of the Company’s
shares should be compared because they comprise other companies in the oil and gas services sector, in addition to being the
comparator group for the PSP.
350
300
250
200
150
100
50
0
2008
2009
2010
2011
2012
2013
Hunting PLC
DJ US Oil Equipment & Services
DJ Stoxx TM Oil Equipment, Services & Distribution
Source: Datastream
The accompanying table details remuneration of the Chief Executive.
Summary Table of the Chief Executive’s Remuneration
Year
2013
2012
2011
2010
2009
Single figure
remuneration1
$’000
4,442
5,497
3,261
1,876
2,363
Annual
Bonus %2
ESOP/PSP
% vesting3
LTIP
% award4
42
75
100
100
17
nil
66
nil
100
100
100
100
31
5
62
1. Single figure remuneration reflects the aggregate remuneration paid to the Chief Executive as defined within the Policy on pages 56 to 69.
2. Annual cash bonus percentages reflect the bonus received by the Chief Executive each year expressed as a percentage of maximum bonus opportunity.
3. Percentage vesting reflects the % of the ESOP which vested in the financial year and the % of the PSP where a substantial portion of the performance period was completed at the
financial year end.
4. LTIP award percentage reflects the award value expressed as a percentage of maximum award opportunity received each year measured at 31 December.
Executive Director Remuneration and the Wider Workforce
The changes to the remuneration of the Chief Executive in 2013 compared to 2012 and those of the total workforce are as follows:
Base salary
Bonus
Benefits
Chief
Executive
+3%
–42%
–6%
Employee
+1%
–4%
+1%
76 Hunting PLC 2013 Annual Report and Accounts
Corporate Governance
Employee Remuneration Changes Benchmarked to Operational Performance
In 2013 the Group paid $299.8m (2012 – $286.1m) in relation to employee remuneration; $20.4m (2012 – $23.9m) in relation to
corporate taxation; $42.5m (2012 – $35.9m) in relation to dividends; and $95.0m (2012 – $97.4m) in relation to capital investments.
The choice of performance metrics represents the material operating costs of the group and the use of generated cash in delivering
long-term shareholder value.
$m
300
250
200
150
100
50
0
299.8
286.1
2013
2012
95.0
97.4
20.4
23.9
Tax paid
Employee
remuneration
42.5
35.9
Dividends
paid
Capital
investment
Implementation of Policies in 2014
The remuneration policies for 2014 will be applied in line with those detailed on pages 56 to 69.
In December 2013, the Board reviewed benchmarked non-executive Director fee data, resulting in no changes being made to fees
payable to the non-executive Directors for 2014.
In March 2014, the Committee met and approved increases of 2.8% and 2.8% respectively to the base salaries of the Chief Executive and
Finance Director.
The annual performance-linked cash bonus for 2014 will be operated in line with the Policy detailed on page 59. The Committee is
committed to disclosing retrospective performance against the pre-set financial and personal performance targets.
Subject to approval of shareholders at the Company’s AGM of the Group in April 2014, the Committee plans to grant nil cost share
awards or options to the Chief Executive, Finance Director and other senior executives of the Group under the Hunting PSP. The awards
will be in line with the rules of the Hunting PSP and subject to performance conditions as follows:
Proportion of awards
Performance condition
Minimum performance target
Maximum performance target
33.33%
TSR
– 25% vests if median performance against a
comparator group of companies is achieved.
– 100% vests if an upper quartile
performance against a comparator group of
companies is achieved.
33.33%
Underlying EPS
– 25% vests if absolute EPS growth across
– 100% vests if absolute EPS growth across
the three year vesting period averages 6%.
the three year vesting period averages 15%.
33.33%
Underlying
ROCE
– 25% vests if average ROCE across the three
year vesting period averages 12%.
– 100% vests if average ROCE across the
three year vesting period averages 17%.
Andrew Szescila
Chairman of the Remuneration Committee
6 March 2014
Hunting PLC 2013 Annual Report and Accounts 77
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Audit Committee Report
“ Our work during 2013 was focused on the integrity of the
Group’s financial reporting, the independence and
effectiveness of the external and internal audit activities,
the Group’s risk management processes and assessing
the Group’s internal controls. We have also considered
whether to submit the Group audit contract to tender and
concluded that the next rotation of audit partner is the
appropriate time to do this.”
John Nicholas, Audit Committee Chairman
78 Hunting PLC 2013 Annual Report and Accounts
Composition and Frequency of Meetings
The Committee comprises the independent non-executive
Directors of the Company: John Nicholas (Committee chairman),
John Hofmeister and Andrew Szescila. Mr Nicholas has a
professional accounting qualification and is considered to have
recent and relevant financial experience; further details can be
found in his biographical summary set out on page 45.
The Committee met four times during the year and operates under
written terms of reference approved by the Board, which are
published on the Company’s website. The Committee normally
meets in March, April, August and December, and the attendance
record of Committee members during the year is noted on page
52. The Chairman, Chief Executive, Finance Director, internal and
external auditors are normally invited to attend meetings. During
the year, the Committee reviewed its effectiveness and the
Committee Chairman reported these findings to the Board.
Responsibilities
The responsibilities of the Audit Committee include:
– monitor and review reports from the executive Directors,
including the Group’s financial statements and Stock Exchange
announcements;
– provide to the Board a recommendation about the Annual
Report and Accounts and whether they are fair, balanced and
understandable;
– monitor and review the Group’s systems of internal control;
– review reports from the Group’s external auditors;
– review reports from the Group’s internal auditors, including
details of the internal audit programme and its scope;
– monitor any corporate governance and accounting
developments;
– monitor the Group’s Bribery Act compliance procedures;
– consider and recommend to the Board the reappointment of the
external auditor;
– agree the scope and fees of the external audit;
– monitor and approve engagements of the external auditor to
provide non-audit services to the Group; and
– review the external auditor’s independence and effectiveness of
the audit process and assess the level and quality of service in
relation to fees paid.
Training
During the year, the Committee received presentations on
amendments to the Group’s corporate reporting requirements in
addition to accounting and governance developments relevant to
the Company’s listed status.
Corporate Governance
Review of the 2013 Financial Statements
The Committee reviews final drafts of the Group’s Report and
Accounts for both the half and full year. As part of this process, the
performance of the Group’s major divisions is considered, with key
judgements, estimates and accounting policies being approved by
the Committee ahead of a recommendation to the Board.
The principle significant issues reviewed by the Committee in
connection with the 2013 Annual Report and Accounts were as
follows:
Adoption of US dollars as the presentational currency
of the Group
The Committee considered a report from the Finance Director
recommending a change of presentation currency, it reviewed the
changes in the composition of the Group following recent
acquisitions and disposals and concluded that the proposed
change was appropriate. During the year, the Committee
monitored progress with the conversion and review of historic
financial data into US dollars and the preparations for the
publication of the 2013 Annual Report and Accounts using US
dollars.
Goodwill Impairment Review
As part of its annual programme of work, the Committee formally
reviewed the carrying value of goodwill held on the Group’s
balance sheet. The Group Financial Controller presented a report
which included growth and future cash flow assumptions for each
cash generating unit. These assumptions and sensitivities to
changes in the assumptions were considered by the Committee
which concluded the goodwill attributed to each business segment
had not been impaired.
Taxation
In view of the international spread of operations the Committee
monitors the incidence of tax risk, tax audits and provisions held
for taxation. On 5 June 2013 the Committee received a
presentation on tax strategy and risk from the Group Taxation
Manager. The Finance Director briefs the Committee on
developments during the year.
Exceptional Items Charged to the Consolidated Income
Statement
The Group accounts have historically reported a middle column
within the Consolidated Income Statement which includes
amortisation and exceptional items.
The Committee considers the items included within this column to
ensure consistency of treatment and adherence to accounting
policy definitions of exceptional items. The Committee also
reviews the calculation and composition of each exceptional item
and has satisfied itself that they are reported appropriately.
The Committee has reviewed the financial statements together
with commentary contained within the Strategic Report set out on
pages 2 to 43 and believes that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable. In arriving
at this conclusion the Committee undertook the following:
– review of early drafts of the Annual Report and Accounts;
– regular review and discussion of the financial results during the
year including briefings by Group finance and operational
management; and
– receipt and review of reports from the external and internal
auditors.
The Committee advised the Board of its conclusion that the 2013
Annual Report and Accounts, taken as a whole, were fair, balanced
and understandable at a meeting of the Directors on 4 March 2014.
External Audit
The external auditors present reports at the March, April, August
and December meetings for consideration by the Committee. In
March, a full year report is considered ahead of publication of the
Group’s Annual Report and Accounts; in April an internal control
report is presented, following the year-end audit and in August an
interim report is presented which includes the proposed full year
audit scope and fee. An update to the full year plan was presented
at the December meeting. The Audit Committee considers the
reappointment of the auditors annually at its March meeting and
makes a recommendation to the Board. The Committee normally
meets with the external auditors without executive Directors
present at the end of each formal meeting.
The external auditors’ full year report includes a statement on their
independence, their ability to remain objective and their ability to
undertake an effective audit. The Committee considers and
assesses this independence statement on behalf of the Board,
taking into account the level of fees paid particularly for non-audit
services.
The effectiveness of the audit was assessed at the April meeting of
the Committee and considered the following matters:
– the auditors’ understanding of the Group’s business and industry
sector;
– the planning and execution of the audit plan approved by the
Committee;
– the communication between the Group and audit engagement
team;
– the auditors’ response to questions from the Committee;
– responses to a formal questionnaire on conduct of the audit
from the financial controllers of the major business;
– a report from the Finance Director and the Group Financial
Controller; and
– finalisation of the audit work ahead of completion of the Annual
Report and Accounts.
In addition to receipt of detailed briefings and supporting reports
from the central finance team on these principle significant issues,
the Committee engages in discussion with the Group’s external
auditors.
In addition, the Committee reviewed and took account of Financial
Reporting Council reports on the audit firm. After considering
these matters, the Committee was satisfied with the effectiveness
of the year-end audit.
Hunting PLC 2013 Annual Report and Accounts 79
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Corporate Governance
Audit Committee Report continued
PricewaterhouseCoopers LLP and its predecessor firms have been
auditors to the Group for many years and since the Company’s
formation on 7 August 1989. The Committee has considered the
requirement within the UK Corporate Governance Code (the
“Code”) to put the external audit contract out to tender at least
every 10 years. Under audit engagement partner rotation rules the
current audit partner will retire at the conclusion of the Annual
General Meeting. In anticipation of this, a new partner from
PricewaterhouseCoopers LLP has been selected by the Audit
Committee and has shadowed the 2013 year-end work. Subject to
shareholder approval, he will undertake the audit for the 2014
financial year. In order to prepare for a tender of the audit contract,
the Company will offer small pieces of non-audit work to other
firms in order to test the quality of each firm and its people. The
Audit Committee plans to put the audit out to tender no later than
2018 when the new partner’s five-year engagement cycle will be in
its final year. In making this decision, the Committee took into
account the statement of independence presented to the
Committee by PricewaterhouseCoopers LLP, and the results of the
internal assessment of the effectiveness of the audit process. The
Committee notes recent developments within the EU with regards
to audit tendering and rotation, which potentially conflicts with
current requirements, therefore the Committee will monitor
evolving guidance from the regulatory bodies and will respond in
the best interests of the Company.
During the year, the Group engaged the services of Deloitte,
KPMG and Ernst and Young to undertake specific non-audit
assignments where the capability of these firms was considered to
be most appropriate.
The Committee closely monitors fees paid to the auditors in
respect of non-audit services, which are analysed within note 8.
In 2013, fees for non-audit services totalled $1.0m and included
taxation services amounting to $0.8m and other services of $0.2m.
The scope and extent of non-audit work undertaken by the
external auditor is monitored by, and, above certain thresholds,
requires prior approval from the Committee to ensure that the
provision of such services does not impair their independence
or objectivity.
The Board received copies of all reports submitted to the
Audit Committee.
Internal Audit
The Audit Committee receives reports from the Internal Audit
department and reviews the internal audit process and
effectiveness as part of the Group’s internal control and risk
assessment programme. An annual programme of internal audit
assignments is reviewed by the Audit Committee.
Internal Controls
The Group has an established internal control environment, which
was in operation throughout the year. The Audit Committee
monitors these arrangements on behalf of the Board, this review
includes a report submitted three times a year on the principal risks
facing the Group and the mitigating controls against those
80 Hunting PLC 2013 Annual Report and Accounts
identified key risks. The Group level report is based on submissions
from all subsidiaries in the Group.
All subsidiaries undertake formal self-assessment risk reviews, a
minimum of three times a year, on their internal control
environment. These reviews are available to the Audit Committee
and encompass the identification of the key business, financial,
compliance and operational risks facing each unit, together with an
assessment of the controls in place for managing and mitigating
these risks. Additionally, risks are evaluated for their potential
impact on the business.
Bribery Act Compliance
In compliance with the UK Bribery Act, Hunting has procedures in
place, including the publication of Bribery and Corruption policies
and detailed guidelines on interacting with customers, suppliers
and agents, including specific policies for gifts, entertainment and
hospitality. Senior managers across the Group are required to
report their compliance activities, including an evaluation of risk
areas. The Group has completed a screening exercise to identify
relevant employees who face a heightened risk of bribery with all
relevant personnel completing a formal training and compliance
course, in line with the Group’s procedures. The Audit Committee
reviews the compliance procedures relating to the Bribery Act at its
April and December meetings, which incorporate risk assessments
completed by each business unit and gifts and entertainment
disclosures made during the reporting period. The Group’s internal
audit function reviews local compliance with the Bribery Act and
reports control improvements and recommendations to the Audit
Committee where appropriate.
Code of Conduct
The Group’s Code of Conduct contains policies and procedures
covering how the Group conducts business and maintains its
relationships with business partners. The Code of Conduct is
available on the Group’s website.
Whistleblowing
The Company’s Senior Independent Director, John Hofmeister, is
the primary point of contact for staff of the Group to raise, in
confidence, concerns they may have over possible improprieties,
financial or otherwise.
In addition, the Group has engaged the services of Safecall Limited,
to provide an independent and confidential whistleblowing service
available to staff across all of Hunting’s operations.
All employees have been notified of these arrangements through
the corporate magazine, Group notice boards and the Group’s
website.
John Nicholas
Chairman of the Audit Committee
6 March 2014
Financial Statements
Independent Auditors’ Report to the Members of Hunting PLC
Report on the financial statements
Our opinion
In our opinion:
– the financial statements, defined below, give a true and fair
view of the state of the Group’s and of the Parent Company’s
affairs as at 31 December 2013 and of the Group’s profit and
of the Group’s and Parent Company’s cash flows for the year
then ended;
– the Group financial statements have been properly prepared
in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union;
– the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and
– the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
This opinion is to be read in the context of what we say in the
remainder of this report.
What we have audited
The Group financial statements and Parent Company financial
statements (the “financial statements”), which are prepared by
Hunting PLC, comprise:
– the Consolidated and Company Balance Sheets as at 31
December 2013;
– the Consolidated Income Statement and Statement of
Comprehensive Income for the year then ended;
– the Consolidated and Company Statements of Changes in
Equity and Statements of Cash Flows for the year then ended;
and
– the notes to the financial statements, which include a summary
of significant accounting policies and other explanatory
information.
The financial reporting framework that has been applied in their
preparation comprises applicable law and IFRSs as adopted by the
European Union and, as regards the Parent Company, as applied in
accordance with the provisions of the Companies Act 2006.
What an audit of financial statements involves
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An
audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of:
– whether the accounting policies are appropriate to the Group’s
and Parent Company’s circumstances and have been
consistently applied and adequately disclosed;
– the reasonableness of significant accounting estimates made by
the directors; and
– the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information
in the 2013 Annual Report and Accounts (the “Annual Report”) to
identify material inconsistencies with the audited financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If
we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Overview of our audit approach
Materiality
We set certain thresholds for materiality. These helped us to
determine the nature, timing and extent of our audit procedures
and to evaluate the effect of misstatements, both individually and
on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the Group financial statements as a whole to be USD 7.5
million. In arriving at this judgement we have had regard to Group
continuing profit before tax, adjusted for the impairment of oil and
gas assets shown as exceptional items because, in our view, this is
an appropriate measure of performance.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above USD 0.3
million as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
Overview of the scope of our audit
The Group financial statements are a consolidation of reporting
units covering non-trading legal entities, centralised functions and
31 operating businesses.
In establishing the overall approach to the group audit, we
considered the type of work that needed to be performed at the
reporting units by us, as the group engagement team, or component
auditors within PwC UK and from other PwC network firms
operating under our instruction. Where the work was performed by
component auditors, we determined the extent of audit work
needed at those reporting units to be able to conclude whether
sufficient appropriate audit evidence had been obtained as a basis
for our opinion on the Group financial statements as a whole.
Accordingly, we concluded that 18 operating businesses required
an audit of the financial information submitted by local
management to be included in the consolidation, due to their size
and/or risk characteristics. The procedures described above
brought operating businesses into the scope of our audit which,
together with our audit work on centralised functions covered over
85% of Group revenue and Group continuing profit before tax.
This, together with other procedures performed at the Group level
over the consolidation and non-trading entities, gave us the
evidence we needed for our opinion on the Group financial
statements as a whole.
Areas of particular audit focus
In preparing the financial statements, the directors made a number
of subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. We
primarily focused our work in these areas by assessing the
Hunting PLC 2013 Annual Report and Accounts 81
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Independent Auditors’ Report to the Members of Hunting PLC
continued
directors’ judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the financial
statements.
In our audit, we tested and examined information, using sampling
and other auditing techniques, to the extent we considered
necessary to provide a reasonable basis for us to draw conclusions.
We obtained audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
We considered the following areas to be those that required
particular focus in the current year. This is not a complete list of all
risks or areas of focus identified by our audit. We discussed these
areas of focus with the Audit Committee. Their report on those
matters that they considered to be significant issues in relation to
the financial statements is set out on page 79.
Area of focus
How the scope of our audit addressed the area of focus
Provision for Gibson Energy Inc tax indemnities
The Group has previously recognised provisions for tax warranty exposures
as a result of the Gibson Energy Inc disposal in 2008. We considered this to
an area of focus because of the inherently judgemental nature of the
estimates involved.
We read the latest correspondence, including the detail of settlement
agreements during the financial year, between the Group, the business
disposed of and the overseas tax authorities to assess the judgement adopted
in the determination of the year-end provision balance and movements
within the year. We also discussed the potential tax exposure and related
warranty with senior Group management, and the basis for their estimate
with the Group’s in-house and external tax specialists.
Taxation
The Group is subject to a number of underlying tax exposures and carries
provisions accordingly. We considered this an area of focus because of the
judgement required by the directors to assess matters arising from overseas
tax compliance assessments and disputes.
We read the latest correspondence between the Group and the overseas tax
authorities. We discussed the potential tax exposure with senior Group
management, and the basis for their positions with the Group’s in-house tax
specialists. We utilised our experience of similar challenges elsewhere to
independently assess the evidence described above.
Change in presentational currency
During the year the Group changed its presentational currency from sterling
to US dollar. As such the financial statements have been re-presented,
including comparative information. We considered this change an area of
focus due to the manual nature of the re-presentation calculation and
complexity of the re-presentation across a number of historical financial
periods.
We assessed the methodology applied for the change in accounting policy
and the adequacy of disclosure in the financial statements on the restatement
of prior period financial information.
We tested the accuracy of the detailed calculation to re-present historical
financial information from Sterling to US dollar, by checking the exchange
rates used for items re-presented in the respective period or date, based on
the nature of those items, and re-performing the calculation for individual
items on a sample basis.
Goodwill impairment
The current economic climate heightens the risk of impairment triggers.
Impairment is an inherently judgemental area as it involves significant
judgements by the directors about the future results of the individual business
operations, being the Group’s cash-generating units (“CGUs”), and therefore
there is an increased risk of material misstatement.
We evaluated the directors’ future cash flow forecasts, and the process by
which they were drawn up, including comparing them to the latest Board
approved budgets, and testing the underlying calculations. We challenged:
– the directors’ key assumptions for nominal long-term growth rates and
terminal growth rates in the forecasts by comparing them to historical
results, economic and industry forecasts; and
Risk of management override of internal controls
ISAs (UK & Ireland) require that we consider this.
– the discount rate by assessing the cost of capital assumption for each
CGUs and comparable organisations.
We also performed sensitivity analysis around the key drivers, including
revenue growth and profit margin, of the cash flow forecasts for each CGU.
Having ascertained the extent of change in those assumptions that either
individually or collectively would be required for the goodwill to be
impaired, we considered the likelihood of such a movement in those key
assumptions arising.
We assessed the overall control environment of the Group, including the
arrangements for staff to “whistle-blow” inappropriate actions, and
interviewed senior management and the Group’s internal audit function. We
examined the significant accounting estimates and judgements relevant to the
financial statements for evidence of bias by the directors that may represent a
risk of material misstatement due to fraud. We also tested journal entries.
Fraud in revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud in revenue recognition
because of the pressure management may feel to achieve expected results.
We evaluated the relevant IT systems and tested certain internal controls over
the completeness, accuracy and timing of revenue recognised in the financial
statements.
We also tested a sample of sales recorded in the period by checking relevant
third party documentation and cash receipts as well as testing journal entries
posted to revenue accounts to identify unusual or irregular items.
82 Hunting PLC 2013 Annual Report and Accounts
Financial Statements Going Concern
Under the Listing Rules we are required to review the directors’
statement, set out on pages 48 and 49, in relation to going
concern. We have nothing to report having performed our review.
As noted in the directors’ statement, the directors have concluded
that it is appropriate to prepare the Group’s and Parent Company’s
financial statements using the going concern basis of accounting.
The going concern basis presumes that the Group and Parent
Company have adequate resources to remain in operation, and
that the directors intend them to do so, for at least one year from
the date the financial statements were signed. As part of our audit
we have concluded that the directors’ use of the going concern
basis is appropriate.
However, because not all future events or conditions can be
predicted, these statements are not a guarantee as to the Group’s
and the Parent Company’s ability to continue as a going concern.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion:
– the information given in the Strategic Report and the Report of
the Directors for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
– the part of the Annual Report on Remuneration to be audited
has been properly prepared in accordance with the Companies
Act 2006.
Other matters on which we are required to report by exception
Adequacy of accounting records and information and
explanations received
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
– we have not received all the information and explanations we
require for our audit; or
– adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
– the Parent Company financial statements and the part of the
Annual Report on Remuneration to be audited are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if,
in our opinion, certain disclosures of directors’ remuneration
specified by law have not been made. We have no exceptions to
report arising from these responsibilities.
Corporate Governance Statement
Under the Listing Rules we are required to review the part of the
Corporate Governance Statement relating to the Company’s
compliance with nine provisions of the UK Corporate Governance
Code (the “Code”). We have nothing to report having performed
our review.
On page 49 of the Annual Report, as required by the Code
Provision C.1.1, the directors state that they consider the Annual
Report taken as a whole to be fair, balanced and understandable
and provides the information necessary for members to assess the
Group’s performance, business model and strategy. On page 79, as
required by C.3.8 of the Code, the Audit Committee has set out the
significant issues that it considered in relation to the financial
statements, and how they were addressed. Under ISAs (UK &
Ireland) we are required to report to you if, in our opinion:
– the statement given by the directors is materially inconsistent
with our knowledge of the Group acquired in the course of
performing our audit; or
– the section of the Annual Report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions to report arising from this responsibility.
Other information in the Annual Report
Under ISAs (UK & Ireland), we are required to report to you if, in
our opinion, information in the Annual Report is:
– materially inconsistent with the information in the audited
financial statements; or
– apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group and Parent
Company acquired in the course of performing our audit; or
– is otherwise misleading.
We have no exceptions to report arising from this responsibility.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors
Responsibilities set out on page 49, the directors are responsible for
the preparation of the Group and Parent Company financial
statements and for being satisfied that they give a true and fair
view.
Our responsibility is to audit and express an opinion on the Group
and Parent Company financial statements in accordance with
applicable law and ISAs (UK & Ireland). Those standards require us
to comply with the Auditing Practices Board’s Ethical Standards for
Auditors.
This report, including the opinions, has been prepared for and only
for the Company’s members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose.
We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Charles van den Arend
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
6 March 2014
Hunting PLC 2013 Annual Report and Accounts 83
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Financial Statements
Consolidated Income Statement
For the Year ended 31 December 2013
Revenue
Cost of sales
Gross profit
Other operating income
Operating expenses
Profit from continuing operations
Finance income
Finance expense
Share of associates’ post-tax profits
Profit before tax from continuing operations
Taxation
Profit for the year:
From continuing operations
From discontinued operations
Profit for the year
Profit attributable to:
Owners of the parent
Non-controlling interests
Earnings per share
Basic
– from continuing operations
– from discontinued operations
Group total
Diluted – from continuing operations
– from discontinued operations
Group total
Restated
2012
Amortisation
and
exceptional
items
(note 7)
$m
–
(23.4)
(23.4)
1.8
(46.3)
(67.9)
–
–
–
(67.9)
26.5
(41.4)
108.0
66.6
66.6
–
66.6
2013
Amortisation
and
exceptional
items
(note 7)
$m
–
(14.8)
(14.8)
–
(46.3)
(61.1)
–
–
–
(61.1)
23.3
(37.8)
15.4
(22.4)
(22.4)
–
(22.4)
Before
amortisation
and
exceptional
items
$m
1,334.0
(898.9)
435.1
7.6
(244.2)
198.5
12.0
(14.8)
0.4
196.1
(52.1)
144.0
–
144.0
140.3
3.7
144.0
95.8c
–
95.8c
93.5c
–
93.5c
Notes
4
5
6
8
12
13
14
14
14
14
Before
amortisation
and
exceptional
items
$m
Total
$m
1,334.0
(913.7)
1,309.0
(886.5)
420.3
7.6
(290.5)
137.4
12.0
(14.8)
0.4
135.0
(28.8)
106.2
15.4
121.6
117.9
3.7
121.6
70.0c
10.5c
80.5c
68.3c
10.3c
78.6c
422.5
6.3
(226.3)
202.5
3.8
(12.5)
1.5
195.3
(54.7)
140.6
–
140.6
135.7
4.9
140.6
93.0c
–
93.0c
90.8c
–
90.8c
Total
$m
1,309.0
(909.9)
399.1
8.1
(272.6)
134.6
3.8
(12.5)
1.5
127.4
(28.2)
99.2
108.0
207.2
202.3
4.9
207.2
64.6c
74.1c
138.7c
63.1c
72.2c
135.3c
84 Hunting PLC 2013 Annual Report and Accounts
Consolidated Statement of Comprehensive Income
For the Year ended 31 December 2013
Comprehensive income
Profit for the year
Components of other comprehensive income after tax
Items that may be reclassified subsequently to profit or loss:
Exchange adjustments
Fair value gains and losses:
– gain on available for sale investment arising during the year
– gains originating on cash flow hedges arising during the year
Items that have been reclassified to profit or loss:
Fair value gains and losses:
– gains transferred to income statement on disposal of cash flow hedges
Release of foreign exchange adjustments on disposal of subsidiary
Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit pension schemes
Other comprehensive expense after tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Financial Statements
Notes
2013
$m
Restated
2012
$m
121.6
207.2
33
33
33
33
(0.9)
12.7
0.2
1.5
0.8
(0.2)
–
(0.2)
2.8
3.4
–
0.7
13.4
(0.1)
(2.2)
(2.3)
(0.7)
10.4
125.0
217.6
120.5
4.5
125.0
211.6
6.0
217.6
Hunting PLC 2013 Annual Report and Accounts 85
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Financial Statements
Consolidated Balance Sheet
At 31 December 2013
ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Investments in associates
Investments
Retirement benefit assets
Trade and other receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Investments
Cash and cash equivalents
Assets classified as held for sale
LIABILITIES
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Provisions
Liabilities classified as held for sale
Net current assets
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Other payables
Net assets
Equity attributable to owners of the parent
Share capital
Share premium
Other components of equity
Retained earnings
Non-controlling interests
Total equity
Notes
2013
$m
Restated
2012
$m
Restated
2011
$m
15
16
17
18
31
20
21
22
20
18
23
24
26
24
21
26
23
32
32
33
34
431.8
495.2
263.0
9.9
9.0
29.6
7.5
3.1
403.8
495.0
301.1
11.0
6.4
22.8
6.1
8.7
359.4
494.0
343.2
9.2
0.4
19.9
3.4
4.6
1,249.1
1,254.9
1,234.1
386.3
264.8
3.9
2.0
167.4
–
824.4
176.5
21.0
135.9
8.0
–
341.4
483.0
239.3
34.7
25.4
17.9
317.3
391.1
278.0
10.6
5.1
165.3
–
850.1
215.7
17.6
132.1
20.3
–
385.7
464.4
304.7
41.8
27.7
12.4
386.6
359.0
270.7
10.0
3.7
106.9
21.1
771.4
228.1
39.4
67.1
65.8
13.1
413.5
357.9
385.9
30.8
28.2
0.2
445.1
1,414.8
1,332.7
1,146.9
61.3
150.6
41.6
1,130.4
1,383.9
30.9
61.0
149.1
42.0
1,050.9
1,303.0
29.7
60.7
146.9
30.8
882.4
1,120.8
26.1
1,414.8
1,332.7
1,146.9
The notes on pages 92 to 149 are an integral part of these consolidated financial statements. The financial statements on pages 84 to 149
were approved by the Board of Directors on 6 March 2014 and were signed on its behalf by:
Dennis Proctor
Director
Peter Rose
Director
86 Hunting PLC 2013 Annual Report and Accounts
Registered number: 974568
Financial Statements
Consolidated Statement of Changes in Equity
At 1 January restated (note 1)
Profit for the year
Other comprehensive (expense) income
Total comprehensive (expense) income
Dividends
Shares issued
– share option schemes and awards
Treasury shares
– purchase of treasury shares
Share options and awards
– value of employee services
– discharge
– taxation
Other
Total transactions with owners
Year ended 31 December 2013
Notes
Share
capital
$m
61.0
Share
premium
$m
149.1
Other
components
of equity
$m
Retained
earnings
$m
Non-
controlling
interests
$m
Total
$m
Total
equity
$m
42.0
1,050.9
1,303.0
29.7
1,332.7
32
34
–
–
–
–
–
–
–
–
0.3
1.5
–
–
–
–
–
–
–
–
–
–
0.3
1.5
–
(0.2)
(0.2)
117.9
2.8
120.7
117.9
2.6
120.5
3.7
0.8
4.5
121.6
3.4
125.0
–
–
–
3.4
(3.6)
–
–
(0.2)
(42.5)
(42.5)
(3.3)
(45.8)
–
(6.7)
–
9.2
(1.3)
0.1
1.8
(6.7)
3.4
5.6
(1.3)
0.1
–
–
–
–
–
–
1.8
(6.7)
3.4
5.6
(1.3)
0.1
(41.2)
(39.6)
(3.3)
(42.9)
At 31 December
61.3
150.6
41.6
1,130.4
1,383.9
30.9
1,414.8
At 1 January restated (note 1)
Profit for the year
Other comprehensive income (expense)
Total comprehensive income
Dividends
Shares issued
– share option schemes and awards
Treasury shares
– purchase of treasury shares
Share options and awards
– value of employee services
– discharge
– taxation
Other
Total transactions with owners
Restated
Year ended 31 December 2012
Notes
Share
capital
$m
60.7
Share
premium
$m
146.9
Other
components
of equity
$m
Retained
earnings
$m
Non-
controlling
interests
$m
Total
$m
Total
equity
$m
30.8
882.4
1,120.8
26.1
1,146.9
32
34
–
–
–
–
–
–
–
–
0.3
2.2
–
–
–
–
–
–
–
–
–
–
0.3
2.2
–
10.0
10.0
202.3
(0.7)
201.6
202.3
9.3
211.6
4.9
1.1
6.0
207.2
10.4
217.6
–
–
–
4.0
(2.8)
–
–
1.2
(36.2)
(36.2)
(2.4)
(38.6)
–
(1.3)
–
4.6
(0.4)
0.2
2.5
(1.3)
4.0
1.8
(0.4)
0.2
–
–
–
–
–
–
2.5
(1.3)
4.0
1.8
(0.4)
0.2
(33.1)
(29.4)
(2.4)
(31.8)
At 31 December
61.0
149.1
42.0
1,050.9
1,303.0
29.7
1,332.7
Hunting PLC 2013 Annual Report and Accounts 87
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Financial Statements
Consolidated Statement of Cash Flows
For the Year ended 31 December 2013
Operating activities
Profit from operations
Depreciation, amortisation and impairment
(Profit) loss on disposal of property, plant and equipment
Proceeds from disposal of property, plant and equipment held for rental
Purchase of property, plant and equipment held for rental
Decrease (increase) in inventories
(Increase) decrease in receivables
Decrease in payables
Decrease in provisions
Taxation paid
Other non-cash flow items
Net cash inflow from operating activities
Investing activities
Interest received
Dividends received from associates
Purchase of subsidiaries
Proceeds from disposal of subsidiaries
Indemnity receipts in respect of disposed subsidiaries
Net movement on loans to and from associates
Proceeds from disposal of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Decrease (increase) in bank deposit investments
Net cash outflow from investing activities
Financing activities
Interest and bank fees paid
Equity dividends paid
Non-controlling interest dividend paid
Share capital issued
Purchase of treasury shares
Proceeds from new borrowings
Repayment of borrowings
Net cash outflow from financing activities
Net cash inflow (outflow) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rates
Cash and cash equivalents at the end of the year
Cash and cash equivalents at the end of the year comprise:
Cash at bank and in hand
Bank overdrafts included in borrowings
88 Hunting PLC 2013 Annual Report and Accounts
Notes
2013
$m
8
41
36
137.4
98.2
(0.1)
8.9
(26.1)
11.0
(0.8)
(26.2)
(4.2)
(20.4)
2.3
180.0
2.6
1.2
(10.7)
–
17.7
0.3
5.4
(68.9)
(5.1)
3.0
(54.5)
(8.9)
(42.5)
(3.3)
1.8
(6.7)
11.3
(71.5)
Restated
2012
$m
134.6
93.1
4.7
4.9
(26.8)
(27.6)
11.9
(2.2)
(3.5)
(23.9)
0.8
166.0
1.9
0.3
(3.5)
5.0
27.2
(1.1)
0.3
(70.6)
(2.2)
(1.2)
(43.9)
(10.3)
(35.9)
(2.4)
2.5
(1.3)
7.2
(90.3)
(119.8)
(130.5)
5.7
47.2
(0.5)
52.4
(8.4)
54.5
1.1
47.2
167.4
(115.0)
165.3
(118.1)
52.4
47.2
Company Balance Sheet
At 31 December 2013
ASSETS
Non-current assets
Investments in subsidiaries
Other investments
Other receivables
Current assets
Other receivables
Current tax asset
Cash and cash equivalents
LIABILITIES
Current liabilities
Other payables
Borrowings
Provisions
Net current assets
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Other payables
Net assets
Equity attributable to owners of the parent
Share capital
Share premium
Other components of equity
Retained earnings
Total equity
Financial Statements
Notes
2013
$m
2012
$m
2011
$m
19
18
20
20
23
24
24
21
23
32
32
33
34
500.6
0.6
18.0
519.2
500.6
0.4
19.3
520.3
485.6
–
41.4
527.0
28.3
1.6
31.4
61.3
10.8
9.9
0.2
20.9
40.4
85.6
0.2
0.3
9.0
95.1
32.0
8.0
2.3
42.3
12.0
4.9
0.4
17.3
25.0
87.2
0.2
0.6
6.7
94.7
464.5
450.6
61.3
150.6
(6.5)
259.1
464.5
61.0
149.1
(6.5)
247.0
450.6
13.5
11.4
1.0
25.9
14.5
0.1
–
14.6
11.3
111.2
1.6
–
–
112.8
425.5
60.7
146.9
(27.7)
245.6
425.5
The notes on pages 92 to 149 are an integral part of these consolidated financial statements. The financial statements on pages 86 to 149
were approved by the Board of Directors on 6 March 2014 and were signed on its behalf by:
Dennis Proctor
Director
Peter Rose
Director
Registered number: 974568
Hunting PLC 2013 Annual Report and Accounts 89
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Financial Statements
Company Statement of Changes in Equity
At 1 January
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends
Shares issued
– share option schemes and awards
Treasury shares
– purchase of treasury shares
Share options and awards
– value of employee services
– discharge
Total transactions with owners
Notes
34
32
34
Year ended 31 December 2013
Share
capital
$m
61.0
Share
premium
$m
149.1
Other
components
of equity
$m
(6.5)
–
–
–
–
–
–
–
–
0.3
1.5
–
–
–
–
–
–
0.3
1.5
–
0.2
0.2
–
–
–
3.4
(3.6)
(0.2)
Retained
earnings
$m
247.0
52.1
–
52.1
Total
equity
$m
450.6
52.1
0.2
52.3
(42.5)
(42.5)
–
1.8
(6.7)
(6.7)
–
9.2
3.4
5.6
(40.0)
(38.4)
At 31 December
61.3
150.6
(6.5)
259.1
464.5
Year ended 31 December 2012
At 1 January
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends
Shares issued
– share option schemes and awards
Treasury shares
– purchase of treasury shares
Share options and awards
– value of employee services
– discharge
Total transactions with owners
Notes
Share
capital
$m
60.7
Share
premium
$m
146.9
Other
components
of equity
$m
(27.7)
–
–
–
–
–
–
–
–
0.3
2.2
–
–
–
–
–
–
0.3
2.2
34
32
Retained
earnings
$m
245.6
34.3
–
34.3
Total
equity
$m
425.5
34.3
20.0
54.3
(36.2)
(36.2)
–
2.5
(1.3)
(1.3)
–
20.0
20.0
–
–
–
4.0
(2.8)
1.2
–
4.6
4.0
1.8
(32.9)
(29.2)
At 31 December
61.0
149.1
(6.5)
247.0
450.6
90 Hunting PLC 2013 Annual Report and Accounts
Company Statement of Cash Flows
For the Year ended 31 December 2013
Operating activities
Profit from operations
Depreciation, amortisation and impairment
Loss (profit) on disposal of subsidiaries
Decrease (increase) in receivables
Increase in payables
(Decrease) increase in provisions
Taxation received (paid)
Other non-cash flow items
Net cash inflow from operating activities
Investing activities
Interest received
Dividends received from subsidiaries
Proceeds from disposal of subsidiaries
Net cash inflow from investing activities
Financing activities
Interest and bank fees paid
Equity dividends paid
Share capital issued
Purchase of treasury shares
Loan issued
Loan issued repaid
Proceeds from new borrowings
Repayment of borrowings
Net cash outflow from financing activities
Net cash inflow (outflow) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rates
Cash and cash equivalents at the end of the year
Cash and cash equivalents at the end of the year comprise:
Cash at bank and in hand
Bank overdrafts included in borrowings
Notes
36
Financial Statements
2013
$m
8.9
–
0.2
3.8
6.0
(0.4)
4.2
4.0
26.7
1.2
46.1
–
47.3
(1.9)
(42.5)
1.8
(6.7)
(15.5)
15.5
39.5
(35.5)
(45.3)
28.7
(0.2)
(0.4)
28.1
31.4
(3.3)
28.1
2012
$m
11.3
6.0
(5.6)
(17.9)
4.4
1.0
(0.4)
4.2
3.0
0.9
26.5
5.0
32.4
(1.8)
(35.9)
2.5
(1.3)
–
26.0
–
(26.0)
(36.5)
(1.1)
0.9
–
(0.2)
2.3
(2.5)
(0.2)
Hunting PLC 2013 Annual Report and Accounts 91
Strategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements
1. Basis of Preparation
The financial statements have been prepared in accordance with the Companies Act 2006 and those International Financial Reporting
Standards (“IFRS”) and IFRIC Interpretations as adopted by the European Union. The financial statements have been prepared on a going
concern basis under the historical cost convention as modified by the revaluation of available for sale financial assets and those financial
assets and financial liabilities held at fair value through profit or loss.
Where a change in the presentational format between the prior year and current year financial statements has been made during the
period, comparative figures have been restated accordingly.
The principal accounting policies applied in the preparation of these financial statements are set out in note 43. These policies have been
consistently applied to all the years presented.
Change in Functional Currency
IAS 21 The Effects of Changes in Foreign Exchange Rates describes functional currency as “the currency of the primary economic
environment in which an entity operates”. A change in functional currency reflects the accumulation over time of those factors which are
the main determinants of functional currency. Having considered the aggregate effect of all relevant factors, the Directors concluded that
the functional currency of Hunting PLC had changed from Sterling to US dollars in the first quarter of 2013. Accordingly, the change in
functional currency of Hunting PLC is effective from 1 January 2013.
In accordance with IAS 21 this change has been accounted for prospectively from this date.
Change in Presentational Currency
Following the acquisition programme undertaken in recent years that focused on US domiciled businesses, the Hunting Group’s US
operations have expanded and become the most significant operations of the Group. The dominant functional currency of the operating
subsidiaries is the US dollar. This is not only driven by US domiciled businesses but also by businesses outside the US, which have a US
dollar functional currency. The Group’s revenues, cash flows and economic returns are now principally denominated in US dollars.
Hunting PLC has changed the currency in which it presents its consolidated and parent Company Financial Statements from Sterling to
US dollars, as this will give a more meaningful view of the Group’s and Company’s financial performance and position.
A change in presentational currency is a change in accounting policy which is accounted for retrospectively. Financial information
reported in Sterling in the Group’s 2012 Annual Report has been restated into US dollars using the procedures outlined below:
a) assets and liabilities denominated in non-US dollar currencies were translated into US dollars at closing rates of exchange. Non-US
dollar trading results were translated into US dollars at average rates of exchange. Differences resulting from the retranslation of the
opening net assets and the results for the year have been taken to the translation reserve;
b) the cumulative translation reserve was set to nil at 1 January 2004 (i.e. the transition date to IFRS). All subsequent movements
comprising differences on the retranslation of the opening net assets of non-US dollar subsidiaries have been charged to the translation
reserve; and
c) share capital, share premium and capital redemption reserves were translated at the historic rates prevailing at the dates of
transactions.
The average exchange rates used to translate the Group’s results into US dollars and the closing rates for each reporting period included
in this report are as follows:
Exchange rates
US$/£ – average
US$/£ – period end
2012
0.6309
0.6152
2011
0.6233
0.6435
2010
0.6452
0.6369
2009
0.6369
0.6211
Reclassification of Costs
Within the consolidated income statement for the year ended 31 December 2012, certain costs within cost of sales and operating
expenses have been reclassified to correctly present these in line with the Group’s accounting policies.
92 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 1. Basis of Preparation continued
Adoption of New Standards, Amendments and Interpretations
IAS 19 (revised) Employee Benefits
IAS 19 (revised) Employee Benefits has been adopted from 1 January 2013. The Group has applied the standard retrospectively in
accordance with the transition provisions of the standard. Under IAS 19 (revised), scheme expenses are now recognised as incurred
rather than charged against a reserve within the defined benefit obligation. This has increased operating expenses by $1.7m for the year
ended 31 December 2012. The cost reserve is consequently no longer required and its derecognition has increased the retirement
benefit net asset by $13.0m at 31 December 2012 and $12.4m at 31 December 2011. The combination of the expected return on assets
and interest cost on the defined benefit obligation is replaced by the net interest on the defined benefit asset. This change, combined
with the effect of removing the scheme expenses reserve, results in a credit to the total expense recognised in profit or loss of $1.1m in
the year ended 31 December 2012.
The impact on the financial statements for the year ended 31 December 2012 has been set out in the tables on pages 94 and 95. The
impact on the Balance Sheet as at 31 December 2011 was to increase the retirement benefit asset by $12.4m to $19.9m, decrease
deferred tax assets by $3.1m to $4.6m, decrease other components of equity by $1.3m to $30.8m and increase retained earnings by
$10.6m to $882.4m.
IFRS 13 Fair Value Measurement
IFRS 13 Fair Value Measurement, which is to be applied prospectively as of 1 January 2013, describes how fair value is to be
measured for all IFRS reporting standards and extends the disclosures to be made on fair value measurement, but does not stipulate in
which cases fair value is to be used. For the disclosures resulting from the first-time application of IFRS 13, see note 28, Financial
instruments: Fair Values.
Amendment to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
The Group has adopted early the amendment to IAS 36, which removes the requirement to disclose the recoverable amount of CGUs
with significant carrying amounts of goodwill.
There are no other new IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning 1 January 2013
that have a material impact on the Group’s financial performance or position.
Standards, Amendments and Interpretations Effective Subsequent to the Year End
– IFRS 9 Financial Instruments*
– IFRS 10 Consolidated Financial Statements
– IFRS 11 Joint Arrangements
– IFRS 12 Disclosure of Interests in Other Entities
– IAS 27 (revised) Separate Financial Statements
– IAS 28 (revised) Investments in Associates and Joint Ventures
– Amendment to IAS 32 – Offsetting Financial Assets and Financial Liabilities
– Amendment to IAS 19 – Defined Benefit Plans: Employee Contributions*
– Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12)
– Annual Improvements to IFRSs 2010–2012*
– Annual Improvements to IFRSs 2011–2013*
* Not yet endorsed by the European Union.
New requirements contained within International Financial Reporting Standards, referred to above, are currently being assessed to
determine whether there is a significant impact on the Group’s results or financial position.
Hunting PLC 2013 Annual Report and Accounts 93
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
1. Basis of Preparation continued
Amendments to Previously Reported Results
Consolidated Income Statement
Revenue
Cost of sales
Gross profit
Other operating income
Operating expenses
Profit from continuing operations
Finance income
Finance expense
Share of associates’ post-tax profits
Profit before tax from continuing operations
Taxation
Profit for the year:
From continuing operations
From discontinued operations
Profit for the year
Earnings per share
Basic
– from continuing operations
– from discontinued operations
Group total
Diluted – from continuing operations
– from discontinued operations
Group total
Consolidated Statement of Comprehensive Income
Comprehensive income
Profit for the year
Other comprehensive income after tax
Exchange adjustments
Remeasurement of defined benefit pension schemes
Other comprehensive income items
Other comprehensive income after tax
Total comprehensive income for the year
* These amounts were previously reported in Sterling.
94 Hunting PLC 2013 Annual Report and Accounts
Year ended
31 December
2012
(previously
reported)*
$m
IAS 19
(revised)
change in
accounting
policy
$m
Amend
classification
of costs
$m
Restated
Year ended
31 December
2012
$m
1,309.0
(914.5)
394.5
8.1
(266.3)
136.3
2.7
(12.5)
1.5
128.0
(28.3)
99.7
108.0
207.7
64.9c
74.1c
139.0c
63.4c
72.2c
135.6c
–
–
–
–
(1.7)
(1.7)
1.1
–
–
(0.6)
0.1
(0.5)
–
(0.5)
(0.3)c
–
(0.3)c
(0.3)c
–
(0.3)c
207.7
(0.5)
12.3
(1.4)
(1.6)
9.3
217.0
0.4
0.7
–
1.1
0.6
–
4.6
4.6
–
(4.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,309.0
(909.9)
399.1
8.1
(272.6)
134.6
3.8
(12.5)
1.5
127.4
(28.2)
99.2
108.0
207.2
64.6c
74.1c
138.7c
63.1c
72.2c
135.3c
207.2
12.7
(0.7)
(1.6)
10.4
217.6
Financial Statements
1. Basis of Preparation continued
Consolidated Balance Sheet
Retirement benefit assets
Deferred tax assets
Other non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Retained earnings
Cumulative translation reserve
Other equity reserves
Total equity
Consolidated Statement of Cash Flows
Operating activities
Profit from operations
Other non-cash flow items
Other cash flows from operating activities
Net cash inflow from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities
Net cash outflow in cash and cash equivalents
* These amounts were previously reported in Sterling.
Year ended
31 December
2012
(previously
reported)*
$m
IAS 19
(revised)
change in
accounting
policy
$m
Amend
classification
of costs
$m
Restated
Year ended
31 December
2012
$m
9.8
11.7
1,223.4
850.1
(385.7)
(386.6)
1,322.7
1,040.1
30.0
252.6
1,322.7
136.3
(0.9)
30.6
166.0
(43.9)
(130.5)
(8.4)
13.0
(3.0)
–
–
–
–
10.0
10.8
(0.8)
–
10.0
(1.7)
1.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22.8
8.7
1,223.4
850.1
(385.7)
(386.6)
1,332.7
1,050.9
29.2
252.6
1,332.7
134.6
0.8
30.6
166.0
(43.9)
(130.5)
(8.4)
Hunting PLC 2013 Annual Report and Accounts 95
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
2. Critical Accounting Estimates and Judgements
The preparation of financial statements requires management to make judgements and assumptions about the future, resulting in the use
of accounting estimates. These will, by definition, seldom equal the related actual results and adjustments will consequently be
necessary. Estimates are continually evaluated, based on experience, consultation with experts and reasonable expectations of future
events.
Accounting estimates are applied in determining the carrying amounts of the following significant assets and liabilities:
Asset/liability
Nature of estimates
Goodwill
– The Group comprises a number of cash generating units (“CGUs”) with each one having
Carrying value at
31 December 2013
$495.2m (2012 – $495.0m)
independent business profiles and cash flows. When goodwill is initially recognised upon a business
combination, it is allocated to the CGUs that are expected to benefit from the combination.
– The goodwill of each CGU is subsequently reviewed for impairment at least annually by comparing
its carrying value with the present value of the estimated future gross cash flows that are expected to
be generated by the CGU.
– The estimated future gross cash flows are based on the Directors’ view of their future trading
prospects and are discounted at a rate that is determined for each CGU in isolation by consideration
of their business risk profiles.
– Any shortfall in the present value of the cash flows is charged to the income statement immediately.
– Details of goodwill are disclosed in note 16.
Property, plant and
equipment and other
intangible assets
Combined carrying value
at 31 December 2013
$694.8m (2012 – $704.9m)
– The Group’s property, plant and equipment and intangible assets (except goodwill) are depreciated
at rates that are intended to spread the irrecoverable cost of the assets over their useful lives. The
Directors must therefore estimate the useful lives of the assets, their residual values and the pattern
of consumption of their carrying values. Each asset is also regularly reviewed to ensure it remains
consistent with the Directors’ assumptions and, when required, adjustments are made prospectively.
– The depreciation rates currently in use are disclosed in note 43. Further details of the Group’s
property, plant and equipment and the other intangible assets are disclosed in notes 15 and 17
respectively.
Provisions
– The measurement of provisions is predominantly based on the Directors’ estimate of the present
Carrying value at
31 December 2013
$33.4m (2012 – $48.0m)
value of the Group’s onerous net cash outflows that are expected to be paid after the balance sheet
date but to which the Group is committed at the balance sheet date.
– The provisions at 31 December 2013 are principally in respect of onerous property leases for which
the Directors have estimated the period of time each property is expected to remain onerous, the
cash flows expected to arise during that period and the risk-free discount rate required to measure
the present value of the cash flows.
– Details of the Group’s provisions are disclosed in note 26.
Taxation
– The deferred tax balances at 31 December 2013 represent an estimate of the amounts that are
Carrying value of net tax
liability at 31 December
2013 $48.7m (2012 –
$40.1m)
expected to be paid or recovered from the tax authorities in future periods if assets and liabilities in
the balance sheet were recovered at their carrying values based on tax laws and rates that have been
substantively enacted by the balance sheet date.
– Measurement of deferred tax balances therefore requires management to assess the substantively
enacted tax laws and rates, the timing of the reversal of existing taxable and deductible temporary
differences and the nature, timing and amount of taxable income which would potentially be
available to support the recognition of deferred tax assets.
– Details of the Group’s deferred tax are disclosed in note 21.
– In determining current tax estimates, management has to consider the likelihood of tax authority
challenges and estimates tax payable accordingly.
96 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 3. Segmental Reporting
Group
The Group reports on seven operating segments, two of which are discontinued operations, in its internal management reports, which
are used to make strategic decisions. The Group’s segments are strategic business units that offer different products and services to
international oil and gas companies, undertake exploration and production activities and provide broking services to the shipping sector.
The discontinued operations comprise Field Aviation, which was sold on 27 April 2012, and Gibson Energy, which was sold in 2008.
Gibson Energy and Field Aviation continue to generate accounting entries due to sale related transactions and are required for
reconciliation purposes.
The Well Construction segment provides products and services used by customers for the drilling phase of oil and gas wells, along with
associated equipment used by the underground construction industry for telecommunication infrastructure build-out and precision
machining services for the energy, aviation and power generation sectors.
The Well Completion segment provides products and services used by customers for the completion phase of oil and gas wells.
The Well Intervention segment provides products and services used by customers for the production, maintenance and restoration of
existing oil and gas wells.
The Exploration and Production segment includes the Group’s oil and gas exploration and production activities in the Southern US and
offshore Gulf of Mexico. The Board of Hunting will not be making any new capital investment, beyond where the division has
contractual commitments and so the division will in future focus on producing out its remaining reserves, with a view to winding down
the operation.
Gibson Shipbrokers is a global energy shipping broker headquartered in London. Crude oil, fuel oil and bio fuels are shipped along with
dry bulk such as coal, iron ore and grain. Gibson Shipbrokers is also involved in the shipping of liquefied petroleum gas (“LPG”),
petrochemicals and liquefied natural gas (“LNG”).
The following tables present the results of the operating segments on the same basis as that used for internal reporting purposes to the
Chief Operating Decision Maker.
The Group measures the performance of its operating segments based on revenue and profit from operations, before exceptional items
and the amortisation of intangible assets. Accounting policies used for segment reporting reflect those used for the Group. Inter-segment
sales are priced on an arm’s length basis. Costs and overheads incurred centrally are apportioned to the continuing operating segments
on the basis of time attributed to those operations by senior executives.
There has been no change in the basis of measurement of segment profit or loss since the year ended 31 December 2012. The
information for the year ended 31 December 2012 has been represented to take into account the change in accounting policy following
the adoption of IAS 19 (revised) on 1 January 2013.
Hunting PLC 2013 Annual Report and Accounts 97
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
3. Segmental Reporting continued
Results from Operations
Continuing operations:
Hunting Energy Services
Well Construction
Well Completion
Well Intervention
Other Activities
Exploration and Production
Gibson Shipbrokers
Total from continuing operations
Net finance expense
Share of associates’ post-tax profits
Profit before tax from continuing operations
Discontinued operations:
Gibson Energy
Field Aviation
Total from discontinued operations
Taxation
Profit from discontinued operations
Year ended 31 December 2013
Total gross
revenue
$m
Inter-
segmental
revenue
$m
Total revenue
$m
Profit from
operations
before
amortisation
and
exceptional
items
$m
Amortisation
and
exceptional
items
$m
387.9
805.6
108.6
(7.0)
(9.5)
–
380.9
796.1
108.6
1,302.1
(16.5)
1,285.6
58.6
124.5
15.7
198.8
8.0
40.4
–
–
8.0
40.4
1.2
(1.5)
1,350.5
(16.5)
1,334.0
198.5
(7.4)
(42.3)
(0.9)
(50.6)
(10.5)
–
(61.1)
(2.8)
0.4
–
–
Total
$m
51.2
82.2
14.8
148.2
(9.3)
(1.5)
137.4
(2.8)
0.4
–
–
–
–
–
–
–
–
–
196.1
(61.1)
135.0
–
–
–
–
–
15.7
(0.2)
15.5
(0.1)
15.4
15.7
(0.2)
15.5
(0.1)
15.4
98 Hunting PLC 2013 Annual Report and Accounts
Financial Statements Total from continuing operations
1,334.4
(25.4)
1,309.0
202.5
3. Segmental Reporting continued
Continuing operations:
Hunting Energy Services
Well Construction
Well Completion
Well Intervention
Other Activities
Exploration and Production
Gibson Shipbrokers
Net finance expense
Share of associates’ post-tax profits
Profit before tax from continuing operations
Discontinued operations:
Gibson Energy
Field Aviation
Total from discontinued operations
Taxation
Profit from discontinued operations
Other Segment Items
Hunting Energy Services
Well Construction
Well Completion
Well Intervention
Other Activities
Exploration and Production
Gibson Shipbrokers
Continuing operations
Restated
Year ended 31 December 2012
Total gross
revenue
$m
Inter-
segmental
revenue
$m
Total revenue
$m
Profit from
operations
before
amortisation
and
exceptional
items
$m
Amortisation
and
exceptional
items
$m
450.3
742.8
89.9
(7.6)
(17.7)
(0.1)
442.7
725.1
89.8
1,283.0
(25.4)
1,257.6
7.8
43.6
–
–
7.8
43.6
72.5
116.6
10.8
199.9
0.9
1.7
(8.1)
(47.5)
(0.9)
(56.5)
(11.4)
–
(67.9)
Total
$m
64.4
69.1
9.9
143.4
(10.5)
1.7
134.6
(8.7)
1.5
(8.7)
1.5
–
–
–
16.0
16.0
–
–
–
–
16.0
16.0
195.3
(67.9)
127.4
–
–
–
–
–
90.1
0.2
90.3
17.7
108.0
90.1
0.2
90.3
17.7
108.0
2013
Amortisation
of intangible
assets
$m
Depreciation
$m
Impairment
$m
Depreciation
$m
2012
Amortisation
of intangible
assets
$m
Impairment
$m
19.3
16.6
6.1
42.0
2.0
0.3
44.3
7.4
35.1
0.9
43.4
–
–
43.4
–
–
–
–
10.5
–
10.5
17.3
15.5
4.9
37.7
2.4
0.3
40.4
8.6
35.0
0.9
44.5
–
–
44.5
–
–
–
–
8.2
–
8.2
Hunting PLC 2013 Annual Report and Accounts 99
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information
Notes to the Financial Statements continued
3. Segmental Reporting continued
Geographical Information
The Group operates across a number of geographical areas. The UK is the domicile of Hunting PLC. The table below shows revenues
from external customers, which are attributed to individual countries on the basis of the location in which the sale originated. Information
on the location of non-current assets is also presented below. Non-current assets exclude defined benefit assets and deferred tax assets.
External revenue
Profit from operations
before amortisation and
exceptional items
Non-current assets
2013
$m
2012
$m
2013
$m
2012
$m
2013
$m
2012
$m
Hunting Energy Services
USA
Canada
North America
UK
Rest of Europe
Europe
Singapore
Rest of Asia Pacific
Asia Pacific
798.8
75.3
874.1
148.6
27.4
176.0
144.7
72.2
216.9
785.0
96.7
881.7
185.5
28.1
213.6
126.1
19.2
145.3
Middle East, Africa and Other
18.6
17.0
155.8
(2.4)
153.4
155.9
8.3
1,007.4
38.9
1,014.8
37.4
164.2
1,046.3
1,052.2
11.3
3.0
14.3
28.1
2.3
30.4
0.7
13.8
2.7
16.5
16.4
1.8
18.2
1.0
88.6
5.0
93.6
12.7
23.7
36.4
10.5
85.3
4.5
89.8
14.9
27.3
42.2
7.6
Other Activities
UK
USA
Other
Continuing operations
Unallocated assets:
Deferred tax assets
Retirement benefit assets
Total non-current assets
1,285.6
1,257.6
198.8
199.9
1,186.8
1,191.8
35.4
8.0
5.0
39.3
7.8
4.3
(0.8)
1.2
(0.7)
1.5
0.9
0.2
2.9
26.5
0.2
2.9
28.5
0.2
1,334.0
1,309.0
198.5
202.5
1,216.4
1,223.4
3.1
29.6
8.7
22.8
1,249.1
1,254.9
Major Customer Information
The Group had no customers (2012 – nil) who accounted for more than 10% of the Group’s external revenue during the year.
4. Revenue
Group
Sale of goods
Revenue from services
Revenue from rental equipment
Continuing operations
2013
$m
2012
$m
1,076.4
135.3
122.3
1,061.2
129.8
118.0
1,334.0
1,309.0
Revenue from services includes revenue from shipbroking activities of $40.4m (2012 – $43.6m).
Revenue in 2012 has been reclassified between the different categories of revenue to correctly present these in line with the Group’s
accounting policies.
100 Hunting PLC 2013 Annual Report and Accounts
Financial Statements
5. Other Operating Income
Group
Royalty income
Operating lease rental income
Gain on disposal of property, plant and equipment
Foreign exchange gains
Other income
Other operating income before exceptional items
Exceptional items included in other income (note 7)
Continuing operations
6. Operating Expenses
Group
Administration expenses before amortisation and exceptional items
Distribution costs and selling costs
Operating expenses before amortisation and exceptional items
Amortisation and exceptional items (note 7)
Continuing operations
2013
$m
1.5
1.4
2.7
1.5
0.5
7.6
–
7.6
2012
$m
3.1
1.2
0.6
0.8
0.6
6.3
1.8
8.1
2013
$m
168.5
75.7
244.2
46.3
290.5
Restated
2012
$m
167.5
58.8
226.3
46.3
272.6
Administration expenses include a fair value loss on non-hedging derivatives of $0.3m (2012 – $0.3m) and foreign exchange losses of
$2.3m (2012 – $2.0m).
The Directors have decided to separate selling costs of $35.5m in 2012 from administration expenses and aggregate these with
distribution costs as they are more closely related to each other.
7. Amortisation and Exceptional Items
Group
Fair value uplift to inventories charge
Impairment of property, plant and equipment
Dry hole costs
Charged to cost of sales
Amortisation of intangible assets (note 17)
Retention bonuses for management of acquired businesses
Settlement of litigation and associated legal expenses
Charged to operating expenses
Release of contingent consideration liability – credited to operating income
Amortisation and exceptional items
Taxation on amortisation and exceptional items (note 12)
Continuing operations
2013
$m
2012
$m
4.3
7.9
2.6
14.8
43.4
–
2.9
46.3
–
61.1
(23.3)
37.8
12.0
8.2
3.2
23.4
44.5
1.8
–
46.3
(1.8)
67.9
(26.5)
41.4
Under IFRS, at acquisition, inventory values are adjusted from their carrying values (generally at cost of production) to a fair value, which
includes profit attributable to the degree of completion of the inventory. This uplift is charged to the income statement as the inventory is
sold, thereby reducing reported operating profits. In 2013, the charge was $4.3m (2012 – $12.0m) relating to the four acquisitions
completed in the second half of 2011.
Hunting PLC 2013 Annual Report and Accounts 101
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
7. Amortisation and Exceptional Items continued
The recoverable amount of oil and gas development expenditure is based on value in use. These calculations use discounted cash flow
projections based on estimated oil and gas reserves, future production and the income and costs in generating this production. Cash
flows are based on productive lives between one and fifteen years and are discounted using a nominal pre-tax rate of 13% (2012 – 12%).
An impairment charge of $7.9m (2012 – $8.2m) was incurred in the year. This resulted from a number of factors, including reductions in
reserve estimates, higher retirement obligation cost estimates and a higher discount rate.
Dry hole costs of $2.6m (2012 – $3.2m) have been incurred and paid during the year from our Exploration and Production activities.
The $1.8m charge for bonuses for key employee retention in 2012 relates to the 2011 acquisitions. During 2012, bonuses of $4.4m were
paid to relevant employees and the liability was discharged.
During 2013, the Group settled a pre-acquisition litigation case brought against one of its subsidiaries. The settlement cost and associated
legal expenses amounted to $2.9m. Cash paid during 2013 was $2.9m (2012 – $nil).
A credit of $1.8m was recognised in the income statement in 2012 for the Doffing contingent consideration arrangement, as the future
payments were not likely to be required.
8. Profit from Continuing Operations
Group
The following items have been charged (credited) in arriving at profit from continuing operations:
Staff costs (note 10)
Depreciation of property, plant and equipment (note 15)
Amortisation of other intangible assets (included in operating expenses) (note 17)
Impairment of property, plant and equipment (included in cost of sales) (note 15)
Impairment of trade and other receivables (note 20)
Cost of inventories recognised as expense (included in cost of sales)*
Write down in inventories
Net (profit) loss on disposal of property, plant and equipment
Operating lease payments
Research and development expenditure
2013
$m
291.1
44.3
43.4
10.5
0.5
795.9
3.2
(0.1)
15.1
0.6
2012
$m
279.5
40.4
44.5
8.2
1.2
789.6
3.6
4.7
10.9
2.7
* The cost of inventories recognised as an expense includes the release of the fair value uplift to inventories of $4.3m (2012 – $12.0m) included in exceptional items (note 7).
Services provided by the Group’s auditor PricewaterhouseCoopers LLP and its associates comprised:
Fees payable to the Company’s auditor and its associates:
Audit of the parent Company and consolidated financial statements
Audit of the Company’s subsidiaries
Total audit
Audit-related assurance services
Tax compliance services
Tax advisory services
Total services relating to taxation
Services relating to corporate finance transactions entered into by the Group
Other services
Total other non-audit services
Total fees
102 Hunting PLC 2013 Annual Report and Accounts
Group
2013
$m
2012
$m
Company
2013
$m
2012
$m
2.2
0.2
2.4
0.1
0.3
0.5
0.8
0.1
0.1
0.2
3.5
2.1
0.2
2.3
0.1
1.0
0.5
1.5
0.1
0.1
0.2
4.1
0.6
–
0.6
–
0.1
0.1
0.2
–
–
–
0.8
0.6
–
0.6
–
0.1
0.2
0.3
–
0.1
0.1
1.0
Financial Statements 9. EBITDA
Group
Reported profit from continuing operations (page 84)
Add: amortisation and exceptional items (note 7)
Add: depreciation
Underlying EBITDA
Less: exceptional items impacting EBITDA
Reported EBITDA
2013
$m
137.4
61.1
44.3
242.8
(7.2)
235.6
Restated
2012
$m
134.6
67.9
40.4
242.9
(15.2)
227.7
EBITDA is a non-GAAP measure and underlying EBITDA is defined as pre-exceptional profit from continuing operations before interest,
tax, depreciation, amortisation and impairment to property, plant and equipment. Underlying EBITDA is used by the Board as a measure
of performance of the Group.
EBITDA includes a $0.7m (2012 – $1.3m) charge in respect of acquisition related costs incurred during the year.
10. Employees
Group
Staff costs during the year comprised:
Wages and salaries
Social security costs
Share-based payments (note 37)
Pension costs
– defined contribution schemes (note 31)
– defined benefit scheme (note 31)
Staff costs for the year
Less: staff costs capitalised as R&D
Staff costs charged to profit from operations
The average monthly number of employees
(including executive Directors) comprised:
UK
Rest of Europe
Canada
USA
Singapore
Rest of Asia Pacific
Middle East, Africa and Other
2013
Continuing
operations
$m
2012
Continuing
operations
$m
Discontinued
operations
$m
248.1
19.5
10.0
9.4
4.4
291.4
(0.3)
291.1
239.4
18.0
11.1
6.8
4.2
279.5
–
279.5
5.9
0.8
–
0.3
–
7.0
–
7.0
Total
$m
245.3
18.8
11.1
7.1
4.2
286.5
–
286.5
2013
2012
Continuing
operations
Continuing
operations
Discontinued
operations
Total
573
72
258
2,281
211
527
34
3,956
552
65
232
2,224
177
476
23
3,749
–
–
73
1
–
–
–
74
552
65
305
2,225
177
476
23
3,823
Hunting PLC 2013 Annual Report and Accounts 103
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
10. Employees continued
The average monthly number of employees
(including executive Directors) comprised:
Well Construction
Well Completion
Well Intervention
Exploration and Production
Field Aviation
Gibson Shipbrokers
Central
Actual number of employees at year end:
Male
Female
Key management comprises the executive and non-executive Directors only. Their compensation is:
Salaries and short-term employee benefits
Social security costs
Post-employment benefits
Share-based payments
2013
2012
Continuing
operations
Continuing
operations
Discontinued
operations
Total
1,186
2,102
432
4
–
167
65
3,956
1,219
1,954
359
4
–
155
58
3,749
–
–
–
–
74
–
–
74
1,219
1,954
359
4
74
155
58
3,823
2013
2012
Continuing
operations
Continuing
operations
3,296
694
3,990
3,138
728
3,866
2013
$m
2.7
0.4
0.5
3.6
7.2
2012
$m
3.4
0.3
0.5
3.8
8.0
Salaries and short-term benefits are included within the Director Remuneration table on page 71 of the Annual Report on Remuneration.
Post employment benefits comprise employer pension contributions. Share-based payments comprise the charge to the income
statement. Details of share options and awards are disclosed on page 75 of the Annual Report on Remuneration.
Company
The Company has no employees.
104 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 11. Net Finance Costs
Group
Finance income:
Bank balances and deposits
Pension interest income
Foreign exchange gains
Other finance income
Finance expense:
Bank overdrafts
Bank borrowings
Bank fees and commissions
Foreign exchange losses
Other finance expense
Net finance expense – continuing operations
12. Taxation
Group
Current tax
– current year expense
– adjustment in respect of prior years
Deferred tax
– origination and reversal of temporary differences
– change in tax rate
– adjustment in respect of prior years
Total tax charged to the income statement –
continuing operations
2013
$m
2.3
1.1
6.2
2.4
12.0
(2.3)
(4.4)
(3.6)
(3.8)
(0.7)
(14.8)
(2.8)
Before
amortisation
and
exceptional
items
$m
2013
Amortisation
and
exceptional
items
$m
63.8
(8.0)
55.8
(2.0)
(0.1)
(1.6)
(3.7)
(22.2)
–
(22.2)
(1.4)
–
0.3
(1.1)
Restated
2012
Amortisation
and
exceptional
items
$m
Before
amortisation
and
exceptional
items
$m
53.2
(9.3)
43.9
10.5
0.5
(0.2)
10.8
(25.2)
–
(25.2)
(1.3)
–
–
(1.3)
Total
$m
41.6
(8.0)
33.6
(3.4)
(0.1)
(1.3)
(4.8)
Restated
2012
$m
1.6
1.1
–
1.1
3.8
(1.5)
(6.6)
(3.3)
(0.2)
(0.9)
(12.5)
(8.7)
Total
$m
28.0
(9.3)
18.7
9.2
0.5
(0.2)
9.5
52.1
(23.3)
28.8
54.7
(26.5)
28.2
The weighted average applicable tax rate for continuing operations before amortisation and exceptional items is 27% (2012 – 28%).
The tax credit in the income statement for amortisation and exceptional items principally comprises $16.5m (2012 – $17.0m) for
amortisation, $3.1m (2012 – $3.0m) for the impairment of oil and gas development expenditure, $1.0m (2012 – $1.1m) for dry hole costs,
$nil (2012 – $0.7m) for retention bonuses, $1.1m (2012 – $nil) for settlement of litigation and associated costs and $1.6m (2012 – $4.7m)
for the fair value uplift to inventories charge.
Hunting PLC 2013 Annual Report and Accounts 105
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
12. Taxation continued
The total tax charge for the year is lower (2012 – lower) than the standard rate of UK corporation tax of 23.25% (2012 – 24.5%) for the
following reasons:
Profit before tax from continuing operations
Tax at 23.25% (2012 – 24.5%)
Permanent differences
Recognition of previously unrecognised deferred taxes
Non-tax deductible (untaxed) exceptional items
Higher rate of tax on overseas profits
Change in tax rates
Adjustments in respect of prior years
Tax charge for the year – continuing operations
Tax effects relating to each component of other comprehensive income:
2013
$m
135.0
31.4
(0.2)
(0.2)
0.1
7.1
(0.1)
(9.3)
28.8
Exchange adjustments
Release of foreign exchange adjustments on disposal of subsidiary
Fair value gains and losses:
– gain on available for sale investment arising during the year
– gains originating on cash flow hedges arising during the year
– gains transferred to income statement on disposal of cash flow
hedges
Remeasurement of defined benefit pension schemes
2013
Tax (charged)
credited
$m
Before tax
$m
After tax
$m
Before tax
$m
Restated
2012
Tax (charged)
credited
$m
(1.7)
–
0.2
1.8
(0.2)
2.3
2.4
0.8
–
–
(0.3)
–
0.5
1.0
(0.9)
–
0.2
1.5
(0.2)
2.8
3.4
9.8
(2.0)
–
0.8
(0.1)
(1.3)
7.2
2.9
(0.2)
–
(0.1)
–
0.6
3.2
Restated
2012
$m
127.4
31.2
2.8
(1.0)
(0.3)
4.5
0.5
(9.5)
28.2
After tax
$m
12.7
(2.2)
–
0.7
(0.1)
(0.7)
10.4
In respect of the tax on the remeasurement of defined benefit pension schemes, a $0.2m charge (2012 – $0.3m credit) arises on the
current year’s movement and a $0.7m credit (2012 – $0.2m credit) is due to a change in tax rates.
A number of changes to the UK corporation tax system were announced in the March 2013 Budget Statement. From 1 April 2013 the
main rate of corporation tax was reduced to 23% and the impact of this change has been recognised in calculating the effective rate of
tax for the year ended 31 December 2013. Legislation to reduce the main rate of corporation tax from 23% to 21% from 1 April 2014 and
from 21% to 20% from 1 April 2015 was included in the Finance Act 2013, which received Royal Assent on 17 July 2013 and,
accordingly, have been used in the calculation of deferred tax balances. The changes have not had a material impact on the Group’s
deferred tax balances.
106 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 13. Discontinued Operations
Group
The results from discontinued operations comprise the following:
Trading results:
Revenue
Cost of sales
Gross profit
Other operating income
Operating expenses
Profit from operations
Finance income
Profit before tax
Taxation
Profit for the year
Gain on disposal:
(Loss) gain on sale before tax
Taxation
(Loss) gain on sale after tax
Field
Aviation
$m
2013
Gibson
Energy
$m
Total
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Field
Aviation
$m
16.0
(15.2)
0.8
1.3
(2.1)
–
–
–
–
–
2012
Gibson
Energy
$m
–
–
–
–
–
–
–
–
–
–
Total
$m
16.0
(15.2)
0.8
1.3
(2.1)
–
–
–
–
–
(0.2)
–
(0.2)
15.7
(0.1)
15.6
15.5
(0.1)
15.4
0.2
0.3
0.5
90.1
17.4
90.3
17.7
107.5
108.0
Total profit from discontinued operations
(0.2)
15.6
15.4
0.5
107.5
108.0
Field Aviation
On 27 April 2012, the Group sold its aviation engineering services business, Hunting Canadian Airport Holdings Ltd and its subsidiaries,
including Field Aviation Company Inc. (together referred to as “Field Aviation”).
Gibson Energy
The sale of Gibson Energy Inc., Hunting’s midstream services operation, was completed on 12 December 2008.
Following the sale of Gibson Energy, Hunting established provisions for tax indemnities given in respect of two tax disputes with the
Canadian Revenue Agency (“CRA”). The CRA ended their enquiry into the larger of the two tax disputes and dropped their challenge in
2012. The enquiry into the second tax dispute has now partially ended, resulting in a release of provisions and refund of cash from the
tax authorities. The resulting gain to the income statement of $15.7m comprises $11.5m release of provisions, $4.0m refund of tax
payments previously made and other movements of $0.2m.
Hunting PLC 2013 Annual Report and Accounts 107
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
14. Earnings per Share
Group
Basic earnings per share (“EPS”) is calculated by dividing the earnings attributable to Ordinary shareholders by the weighted average
number of Ordinary shares outstanding during the year.
For diluted earnings per share, the weighted average number of outstanding Ordinary shares is adjusted to assume conversion of all
dilutive potential Ordinary shares. The dilution in respect of share options applies where the exercise price is less than the average market
price of the Company’s Ordinary shares during the year and the possible issue of shares under the Group’s long-term incentive plans.
Reconciliations of the earnings and weighted average number of Ordinary shares used in the calculations are set out below:
Basic and diluted earnings attributable to Ordinary shareholders:
From continuing operations
From discontinued operations
Total
Basic and diluted earnings attributable to Ordinary shareholders before amortisation and
exceptional items:
From continuing operations
Add: amortisation and exceptional items after taxation (note 7)
Total
From discontinued operations
Add: exceptional items after taxation
Total
Basic weighted average number of Ordinary shares
Dilutive outstanding share options
Long-term incentive plans
Adjusted weighted average number of Ordinary shares
Basic EPS:
From continuing operations
From discontinued operations
Diluted EPS:
From continuing operations
From discontinued operations
Earnings per share before amortisation and exceptional items
Basic EPS:
From continuing operations
From discontinued operations
Diluted EPS:
From continuing operations
From discontinued operations
108 Hunting PLC 2013 Annual Report and Accounts
2013
$m
2012
$m
102.5
15.4
117.9
94.3
108.0
202.3
102.5
37.8
140.3
94.3
41.4
135.7
15.4
(15.4)
–
108.0
(108.0)
–
millions
millions
146.5
1.1
2.4
150.0
145.9
1.2
2.4
149.5
cents
cents
70.0
10.5
80.5
68.3
10.3
78.6
95.8
–
95.8
93.5
–
93.5
64.6
74.1
138.7
63.1
72.2
135.3
93.0
–
93.0
90.8
–
90.8
Financial Statements 15. Property, Plant and Equipment
Group
Cost:
At 1 January
Exchange adjustments
Additions
Acquisitions
Disposals
Reclassification to other intangible assets
Reclassification to other receivables
At 31 December
Accumulated depreciation and impairment:
At 1 January
Exchange adjustments
Charge for the year
Impairment of assets (note 3)
Disposals
Reclassification to other intangible assets
At 31 December
Net book amount
Plant,
machinery
and motor
vehicles
$m
2013
Oil and gas
exploration
and
development
$m
Rental
tools
$m
250.6
(0.7)
37.5
1.7
(4.6)
(3.0)
–
281.5
114.0
(0.6)
26.2
–
(4.1)
(2.2)
133.3
124.0
0.1
26.4
–
(15.3)
–
–
135.2
36.1
–
11.5
–
(5.1)
–
42.5
162.3
–
10.8
–
–
–
(1.8)
171.3
137.3
–
2.0
10.5
–
–
149.8
Land and
buildings
$m
172.7
0.9
20.3
–
(4.5)
2.7
–
192.1
18.4
(0.1)
4.6
–
(2.2)
2.0
22.7
Total
$m
709.6
0.3
95.0
1.7
(24.4)
(0.3)
(1.8)
780.1
305.8
(0.7)
44.3
10.5
(11.4)
(0.2)
348.3
169.4
148.2
92.7
21.5
431.8
Oil and gas exploration and development includes expenditure on the exploration for and evaluation of mineral resources, which is
recognised at cost and is not depreciated until production commences, or is impaired if the exploration of the mineral resources is not
commercially viable. The amount recognised in cost at 31 December 2013 is $nil (2012 – $0.3m), including additions during the year of
$2.6m (2012 – $0.3m), offset by reclassifications of $0.3m (2012 – $nil) and an impairment loss of $2.6m (2012 – $nil).
Included in the net book amount is expenditure relating to assets in the course of construction of $6.2m (2012 – $0.5m) for land and
buildings, $5.0m (2012 – $3.4m) for oil and gas exploration and development, $10.7m (2012 – $10.3m) for plant and machinery and
$0.6m (2012 – $nil) for rental tools.
Group capital expenditure committed, for the purchase of property, plant and equipment, but not provided for in these financial
statements amounted to $19.2m (2012 – $12.8m).
The net book amount of land and buildings of $169.4m (2012 – $154.3m) comprises freehold land and buildings of $165.3m (2012
– $152.5m) and short leasehold land and buildings of $4.1m (2012 – $1.8m).
Hunting PLC 2013 Annual Report and Accounts 109
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
15. Property, Plant and Equipment continued
Cost:
At 1 January
Exchange adjustments
Additions
Disposals
Reclassification
At 31 December
Accumulated depreciation and impairment:
At 1 January
Exchange adjustments
Charge for the year
Impairment of assets (note 3)
Disposals
Reclassification
At 31 December
Net book amount
Plant,
machinery
and motor
vehicles
$m
2012
Oil and gas
exploration
and
development
$m
Rental
tools
$m
214.8
5.0
38.1
(3.5)
(3.8)
250.6
91.5
3.9
24.4
–
(3.2)
(2.6)
114.0
110.0
0.4
27.8
(14.2)
–
124.0
29.6
0.2
10.1
–
(3.8)
–
36.1
152.6
–
9.7
–
–
162.3
126.7
–
2.4
8.2
–
–
137.3
Land and
buildings
$m
141.4
2.9
24.8
(0.2)
3.8
172.7
11.6
0.8
3.5
–
(0.1)
2.6
18.4
Total
$m
618.8
8.3
100.4
(17.9)
–
709.6
259.4
4.9
40.4
8.2
(7.1)
–
305.8
154.3
136.6
87.9
25.0
403.8
The net book amount of property, plant and equipment at 1 January 2012 was $359.4m.
16. Goodwill
Group
Cost:
At 1 January
Exchange adjustments
Additions
At 31 December
Accumulated impairment:
At 1 January
Exchange adjustments
At 31 December
Net book amount
The net book amount at 1 January 2012 was $494.0m.
110 Hunting PLC 2013 Annual Report and Accounts
2013
$m
2012
$m
529.4
(1.5)
1.3
529.2
34.4
(0.4)
34.0
527.2
2.2
–
529.4
33.2
1.2
34.4
495.2
495.0
Financial Statements 16. Goodwill continued
Impairment Tests for Goodwill
Goodwill is allocated to the Group’s cash-generating units (“CGUs”), the individual business operations, as follows:
Innova
Dearborn
Titan
Welltonic
Hunting Stafford (formerly National Coupling Company)
Other cash generating units
At 31 December
2013
$m
2012
$m
68.7
25.5
288.4
19.1
32.7
60.8
495.2
68.7
25.5
287.1
18.7
32.7
62.3
495.0
The recoverable amount of a CGU is determined based on value in use calculations. The key assumptions for the value in use
calculations are long-term growth rates and pre-tax discount rates. The calculations use discounted pre-tax cash flow projections based
on the most recent financial budgets approved by management covering a two year period and are based on past experience and order
books. Cash flows beyond the two year period are extrapolated using estimated nominal long-term growth rates of approximately 5.0%
and 6.8% and terminal growth rates of approximately 3.0% and 2.7% for 2013 and 2012 respectively. The growth rate reflects the
products, industries and countries in which the relevant CGU operates and will incorporate, where relevant, projected rig counts and the
expected profile of drilling.
Cash flows are discounted using nominal pre-tax rates between 9% and 15% (2012 – 10% and 15%). The cash flows for the Titan CGU
have been discounted using a nominal pre-tax rate of 11% (2012 – 11%). The discount rate best reflects current market assessments of the
time value of money, the risks associated with the cash flows and the likely external rate of borrowing of the CGU. Consideration has also
been given to other factors such as currency risk, operational risk and country risk.
Sensitivities
Having performed a sensitivity analysis on the value in use calculations, management believes that no reasonably possible change in any
of the key assumptions would cause the recoverable amount of any CGU to be materially below its carrying value.
17. Other Intangible Assets
Group
Cost:
At 1 January
Exchange adjustments
Additions
Acquisitions
Reclassification from PPE
At 31 December
Accumulated amortisation:
At 1 January
Exchange adjustments
Charge for the year
Reclassification from PPE
At 31 December
Net book amount
Customer
relationships
$m
Unpatented
technology
$m
2013
Patents and
trademarks
$m
Other
$m
Total
$m
247.7
–
–
0.1
–
247.8
40.1
0.1
26.1
–
66.3
53.4
–
–
–
–
53.4
6.9
–
5.3
–
12.2
50.4
–
2.8
–
–
53.2
13.6
–
7.5
–
21.1
19.9
0.1
2.2
0.2
0.3
22.7
9.7
0.1
4.5
0.2
371.4
0.1
5.0
0.3
0.3
377.1
70.3
0.2
43.4
0.2
14.5
114.1
181.5
41.2
32.1
8.2
263.0
Hunting PLC 2013 Annual Report and Accounts 111
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
17. Other Intangible Assets continued
Cost:
At 1 January
Exchange adjustments
Additions
At 31 December
Accumulated amortisation:
At 1 January
Exchange adjustments
Charge for the year
At 31 December
Net book amount
Customer
relationships
$m
Unpatented
technology
$m
2012
Patents and
trademarks
$m
Other
$m
Total
$m
247.5
0.2
–
247.7
13.8
0.2
26.1
40.1
53.4
–
–
53.4
1.5
–
5.4
6.9
50.4
–
–
50.4
5.2
–
8.4
13.6
17.5
0.2
2.2
19.9
5.1
–
4.6
9.7
368.8
0.4
2.2
371.4
25.6
0.2
44.5
70.3
207.6
46.5
36.8
10.2
301.1
The net book amount of total other intangible assets at 1 January 2012 was $343.2m.
Other intangible assets include non-compete agreements of $3.1m (2012 – $6.8m) and software of $4.1m (2012 – $2.7m).
Internally generated intangible assets have been included within Patents and Trademarks, with additions during the year of $2.7m (2012
– $nil) and the carrying value at the end of the year $2.7m (2012 – $nil).
All amortisation charges relating to intangible assets have been charged to operating expenses.
All intangible assets are regarded as having a finite life and are amortised accordingly.
Individual Material Intangible Assets
Included in the table above are the following individual material intangible assets:
2013
Customer
relationships –
Innova
$m
Customer
relationships –
Titan
$m
27.0
190.1
7.9
3.4
11.3
24.6
19.0
43.6
15.7
146.5
4.7
7.8
Cost:
At 1 January and 31 December
Accumulated amortisation:
At 1 January
Charge for the year
At 31 December
Net book amount
Remaining amortisation period at 31 December – years
112 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 18. Investments
Non-current:
Unlisted equity investments
Listed equity investments and mutual funds
Environmental escrow
Current:
Bank deposits maturing after more than three months
Group
Company
2013
$m
0.4
8.0
0.6
9.0
Group
2013
$m
2.0
2012
$m
0.3
5.7
0.4
6.4
2012
$m
5.1
2013
$m
–
–
0.6
0.6
Company
2013
$m
–
2012
$m
–
–
0.4
0.4
2012
$m
–
The maximum exposure to credit risk at 31 December 2013 is the fair value of the financial assets of $11.0m (2012 – $11.5m), see note 28.
19. Investments in Subsidiaries
Company
Cost:
At 1 January
Exchange adjustments
Disposals
At 31 December
Impairment:
At 1 January
Exchange adjustments
Charge for the year
At 31 December
Net book amount
2013
$m
2012
$m
509.9
–
–
509.9
488.6
22.4
(1.1)
509.9
9.3
–
–
9.3
3.0
0.3
6.0
9.3
500.6
500.6
The principal subsidiaries are detailed in note 42.
The impairment charge of $6.0m in 2012 relates to a non-trading subsidiary that has incurred losses and which the Directors do not
expect to be recovered in the foreseeable future. The investment has therefore been written down to the subsidiary’s net asset value,
being the Directors’ estimate of the recoverable amount.
Investments in subsidiaries are recorded at cost, which is the fair value of the consideration paid, less impairment. The Directors believe
that the carrying value of the investments is supported by their underlying net assets.
Hunting PLC 2013 Annual Report and Accounts 113
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information
Notes to the Financial Statements continued
20. Trade and Other Receivables
Non-current:
Receivables from subsidiaries
Other receivables
Prepayments
Current:
Trade receivables
Less: provision for impairment of receivables
Net trade receivables
Receivables from subsidiaries
Receivable due from Canadian tax authority
Prepayments
Accrued revenue
Other receivables
Group
2013
$m
–
4.3
3.2
7.5
227.6
(3.9)
223.7
–
–
9.9
10.9
20.3
264.8
2012
$m
–
2.7
3.4
6.1
237.3
(3.7)
233.6
–
14.2
10.8
6.0
13.4
278.0
Company
2013
$m
2012
$m
15.5
2.5
–
18.0
–
–
–
28.0
–
0.1
–
0.2
28.3
16.6
2.7
–
19.3
–
–
–
31.3
–
0.2
–
0.5
32.0
Group
Trade receivables that are not overdue and not impaired are expected to be fully recovered as there is no recent history of default or any
indications that the customers will not meet their payment obligations. At the year end there are no trade receivables (2012 – none)
whose terms have been renegotiated and would otherwise be past due or impaired.
At 31 December 2013, trade receivables of $94.3m (2012 – $100.1m) were overdue but not impaired. The ageing of these receivables at
the year end is as follows:
Number of days overdue:
1–30 days
31–60 days
61–90 days
91–120 days
more than 120 days
Receivables overdue not impaired
Receivables not overdue and not impaired
Receivables not overdue and impaired
Receivables overdue and impaired
Impairment
Net trade receivables
2013
$m
53.7
23.7
9.9
7.0
–
94.3
129.4
1.8
2.1
(3.9)
223.7
2012
$m
55.1
25.3
10.2
7.5
2.0
100.1
133.4
1.9
1.9
(3.7)
233.6
Receivables that are overdue but not impaired relate to customers for whom there is no recent history of default.
Impaired receivables mainly relate to debtors in financial difficulty where defaults in payments have occurred or concerns have been
raised about the customer’s liquidity. Trade receivables are impaired when there is evidence that the Group will not be able to collect all
amounts due according to the original terms of sale.
During the year, a provision of $1.5m (2012 – $2.2m) for the impairment of receivables was recognised, $0.4m (2012 – $0.9m)
receivables were written off and $1.0m (2012 – $1.0m) unused provisions were released. After recognising foreign exchange movements
of $0.1m (2012 – $nil), the provision for the impairment of trade receivables at the year end was $3.9m (2012 – $3.7m).
The other classes of financial assets within trade and other receivables do not contain impaired assets.
Concentrations of credit risk with respect to trade receivables are limited due to the Group’s wide and unrelated customer base.
The maximum exposure to credit risk is the fair value of each class of receivable, as shown in note 28.
114 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 20. Trade and Other Receivables continued
The Group does not hold any collateral as security and no assets have been acquired through the exercise of any collateral
previously held.
Company
None (2012 – none) of the Company’s trade and other receivables were past due at the year end and the Company does not consider it
necessary to provide for any impairments. The Company’s maximum exposure to credit risk is the fair value of each class of receivable,
as shown in note 28. The Company does not hold any collateral as security and no assets have been acquired through the exercise of
any collateral previously held.
Non-current receivables due from subsidiaries have no fixed term for repayment and are unsecured. Interest charged is 1% above UK
Base Rate on Sterling loans. Current receivables due from subsidiaries are unsecured, interest free and payable on demand.
21. Deferred Tax
Deferred income tax assets and liabilities are only offset when there is a legally enforceable right to offset and when the deferred income
taxes relate to the same fiscal authority and there is an intention to settle the balance net. The offset amounts are as follows:
Deferred tax assets
Deferred tax liabilities
The movement in the net deferred tax liability is as follows:
At 1 January restated
Exchange adjustments
(Charge) credit to income statement*
Taken direct to equity
Change in tax rate through the income statement**
Other movements
At 31 December
Group
Company
2013
$m
3.1
(34.7)
(31.6)
Restated
2012
$m
8.7
(41.8)
(33.1)
2013
$m
–
(0.2)
(0.2)
Group
Company
2013
$m
(33.1)
–
3.5
(2.6)
–
0.6
(31.6)
Restated
2012
$m
(26.2)
0.2
(6.3)
(0.1)
(0.7)
–
(33.1)
2013
$m
(0.2)
–
–
–
–
–
(0.2)
2012
$m
–
(0.2)
(0.2)
2012
$m
(1.6)
–
1.3
–
0.1
–
(0.2)
*
**
Included in the credit to the income statement is a $1.2m charge (2012 – $2.7m credit) relating to discontinued operations.
Included in the charge in tax rate is a $0.1m charge (2012 – $0.2m charge) relating to discontinued operations.
Deferred tax assets of $0.7m (2012 – $0.5m) have not been recognised as realisation of the tax benefit is not probable. The tax losses do
not have an expiry date.
Previously unrecognised deferred tax assets of $0.2m (2012 – $3.2m) have been recognised as the Group has assessed that the realisation
of the benefit is probable. Deferred tax assets of $3.1m (2012 – $8.7m) are expected to be recovered after more than twelve months.
Deferred tax liabilities of $34.7m (2012 – $41.8m) are expected to be released after more than twelve months.
Hunting PLC 2013 Annual Report and Accounts 115
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
21. Deferred Tax continued
The movements in deferred tax assets and liabilities, without taking into consideration the offsetting of balances within the same tax
jurisdictions, are shown below:
Group
Tax losses
Inventory
Goodwill and intangibles
Post retirement benefits
Asset decommissioning provision
Accumulated tax depreciation
Share-based payments
Unremitted earnings
Other
Restated
At 1 January
2013
$m
Exchange
adjustments
$m
(Charge) credit
to income
statement
$m
Taken direct
to equity
$m
2.1
4.8
(12.0)
(3.3)
1.9
(37.5)
10.5
(0.2)
0.6
(33.1)
–
0.1
(0.1)
(0.2)
–
0.1
–
–
0.1
–
(1.2)
0.4
(3.6)
(0.3)
0.2
2.4
(0.3)
–
5.9
3.5
–
–
–
–
–
–
(2.3)
–
(0.3)
(2.6)
Change in
tax rates
through
the income
statement
$m
(0.1)
–
–
0.1
–
0.1
(0.1)
–
–
–
Tax losses
Inventory
Goodwill and intangibles
Post retirement benefits
Asset decommissioning provision
Accumulated tax depreciation
Share-based payments
Unremitted earnings
Other
Restated
At 1 January
2012
$m
Exchange
adjustments
$m
(Charge) credit
to income
statement
$m
Taken direct
to equity
$m
6.0
7.0
(10.3)
(4.1)
1.5
(31.8)
8.2
(1.6)
(1.1)
(26.2)
0.1
–
–
(0.2)
–
(0.1)
0.4
–
–
0.2
(3.8)
(2.3)
(1.7)
0.4
0.4
(4.8)
2.3
1.3
1.9
(6.3)
–
–
–
0.5
–
–
(0.4)
–
(0.2)
(0.1)
Other
movements
$m
At
31 December
2013
$m
Net deferred
tax assets
$m
Net deferred
tax liabilities
$m
–
0.1
(1.2)
(0.1)
–
1.2
–
–
0.6
0.6
0.8
5.4
(16.9)
(3.8)
2.1
(33.7)
7.8
(0.2)
6.9
(31.6)
0.8
–
–
(5.9)
–
0.8
7.8
–
(0.4)
3.1
–
5.4
(16.9)
2.1
2.1
(34.5)
–
(0.2)
7.3
(34.7)
Change in
tax rates
through
the income
statement
$m
At
31 December
2012
$m
Net deferred
tax assets
$m
Net deferred
tax liabilities
$m
(0.2)
0.1
–
0.1
–
(0.8)
–
0.1
–
(0.7)
2.1
4.8
(12.0)
(3.3)
1.9
(37.5)
10.5
(0.2)
0.6
(33.1)
2.1
–
–
(5.2)
–
1.3
10.5
–
–
8.7
–
4.8
(12.0)
1.9
1.9
(38.8)
–
(0.2)
0.6
(41.8)
Company
The Company had $0.2m (2012 – $0.2m) of deferred tax liabilities relating to unremitted earnings at the year end.
22. Inventories
Group
Raw materials
Work in progress
Finished goods
Less: provisions for impairment
2013
$m
103.2
62.6
232.1
(11.6)
386.3
2012
$m
109.4
69.7
223.1
(11.1)
391.1
Inventories are stated at the lower of cost and fair value less selling costs. The carrying amount of inventories stated at fair value less
selling costs is $20.2m (2012 – $12.3m).
The Group reversed $0.4m (2012 – $2.0m) of a previous inventory impairment as the goods were sold during the year for an amount
greater than their carrying value. The amount reversed has been included in cost of sales in the income statement.
116 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 23. Trade and Other Payables
Non-current:
Accruals
Social security and other taxes
Other payables
Current:
Trade payables
Payables to subsidiaries
Social security and other taxes
Accruals
Other payables
Company
Current payables due to subsidiaries are unsecured, interest free and payable on demand.
24. Borrowings
Non-current:
Unsecured bank loans
Other unsecured loans
Amounts due to subsidiaries
Current:
Bank overdrafts
Secured bank loans
Unsecured bank loans
Other unsecured loans
Amounts due to subsidiaries
Total borrowings
Analysis of Borrowings by Currency
Group
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
Secured bank loans
Unsecured bank loans
Other unsecured loans
Bank overdrafts
At 31 December 2013
Group
Company
2013
$m
9.5
0.4
8.0
Restated
2012
$m
6.7
–
5.7
17.9
12.4
75.1
–
11.9
70.6
18.9
176.5
100.5
–
8.3
83.1
23.8
215.7
2013
$m
9.0
–
–
9.0
–
5.5
–
5.1
0.2
10.8
2012
$m
6.7
–
–
6.7
–
1.0
–
10.3
0.7
12.0
Group
2013
$m
2012
$m
Company
2013
$m
2012
$m
235.4
3.9
–
239.3
115.0
–
18.8
2.1
–
135.9
375.2
298.7
6.0
–
304.7
118.1
0.3
11.7
2.0
–
132.1
436.8
–
–
85.6
85.6
3.3
–
–
–
6.6
9.9
–
–
87.2
87.2
2.5
–
–
–
2.4
4.9
95.5
92.1
Sterling
$m
US dollars
$m
–
–
67.6
67.6
254.2
6.0
47.3
307.5
Euro
$m
–
–
0.1
0.1
Total
$m
254.2
6.0
115.0
375.2
Hunting PLC 2013 Annual Report and Accounts 117
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
24. Borrowings continued
Secured bank loans
Unsecured bank loans
Other unsecured loans
Bank overdrafts
At 31 December 2012
Sterling
$m
US dollars
$m
–
–
–
107.1
107.1
0.3
310.4
8.0
10.6
329.3
Euro
$m
–
–
–
0.4
0.4
Total
$m
0.3
310.4
8.0
118.1
436.8
Company
The Company has borrowings of $95.5m (2012 – $92.1m) at the year end, of which $60.1m (2012 – $91.2m) are denominated in Sterling
and $35.4m (2012 – $0.9m) are denominated in US dollars.
Non-current borrowings due to subsidiaries have no fixed term for repayment and are unsecured. Interest charged is 1% above UK Base
Rate on Sterling loans. Current borrowings due to subsidiaries have no fixed term for repayment, are unsecured and interest free.
25. Changes in Net Debt
Group
Net debt is a non-GAAP measure. The analysis below is provided in order to reconcile the movement in borrowings (note 24) and cash
and cash equivalents during the year.
Exchange
movements
$m
Amortisation
of loan
facility fees
$m
At
31 December
2013
$m
At
1 January
2013
$m
165.3
(118.1)
47.2
5.1
(304.7)
(14.0)
(266.4)
Cash
flow
$m
2.9
2.8
5.7
(3.0)
67.1
(6.9)
62.9
(0.8)
0.3
(0.5)
(0.1)
–
–
(0.6)
–
–
–
–
(1.7)
–
(1.7)
Other
$m
8.9
–
–
1.2
(0.7)
(0.5)
0.1
–
(0.2)
8.8
167.4
(115.0)
52.4
2.0
(239.3)
(20.9)
(205.8)
Total
$m
48.0
(0.4)
1.2
1.2
(4.2)
(12.0)
0.2
(0.4)
(0.2)
33.4
Onerous
contracts
$m
Warranties
and tax
indemnities
$m
24.9
0.3
0.6
–
(3.0)
–
0.1
(0.4)
–
22.5
14.2
(0.7)
0.6
–
(0.5)
(11.5)
–
–
–
2.1
Cash and cash equivalents
Bank overdrafts
Current investments
Non-current borrowings
Current borrowings
Total net debt
26. Provisions
Group
At 1 January 2013
Exchange adjustments
Charged to income statement
Charged to property, plant and equipment
Provisions utilised
Unutilised amounts reversed
Unwinding of discount
Change in discount rate
Other
At 31 December 2013
118 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 26. Provisions continued
Provisions are due as follows:
Current
Non-current
2013
$m
8.0
25.4
33.4
2012
$m
20.3
27.7
48.0
The Group has commitments in respect of leasehold properties, some of which are not used for Group trading purposes and are vacant
or sub-let to third parties. The provision for onerous contracts reflects the uncertainty of future conditions in the sub-letting market. It is
expected that $3.5m of the provision will be utilised in 2014, $3.2m in 2015 and the remaining balance of $15.8m utilised from 2016 to
2023. Provision is made on a discounted basis, at a risk-free rate of between 0.29% and 2.86% p.a., for the net rental deficit on these
properties to the end of the lease term.
Asset decommissioning and remediation obligations of $6.1m (2012 – $5.6m) relate to the Group’s obligation to dismantle, remove and
restore items of property, plant and equipment and have been included in other provisions. The provision reflects uncertainty in the
timing and amounts of the costs expected to arise in meeting this obligation. Provision is made on a discounted basis and is expected to
be utilised over a period of one to fourteen years.
Following the sale of Gibson Energy in 2008, Hunting established provisions for tax indemnities given in respect of two tax disputes with
the Canadian Tax Authorities (“CRA”). The CRA have now ended their enquiry into the disputes and have dropped their challenge.
27. Derivatives and Hedging
Group
(a) Currency Derivatives
The Group has used spot and forward foreign exchange contracts to hedge its exposure to exchange rate movements during the year.
At 31 December 2013, the total notional amount of the Group’s outstanding forward foreign exchange contracts is $22.5m (2012 –
$5.9m).
Gains and losses on contracts that are not designated in a hedge relationship are taken directly to the income statement. Changes
in the fair value of currency derivatives not designated in a hedge relationship amounting to a $0.3m loss (2012 – $0.2m loss)
have been recognised in the income statement during the year for continuing operations.
Certain highly probable forecast transactions have been designated in a cash flow hedge relationship and hedged using forward
foreign exchange contracts. These forecast transactions are expected to occur at various dates during the next twelve months. Gains
and losses recognised in the hedging reserve on forward foreign exchange contracts at 31 December 2013 will be recognised in
the income statement in the period or periods during which the hedged forecast transaction affects the income statement.
Gains of $1.8m (2012 – $0.8m gains) were recognised in the hedging reserve (note 33) during the year. Gains of $0.2m (2012 – $0.1m
gains) were reclassified from equity during the year and included in revenue in the income statement. Ineffectiveness of $nil (2012 – $nil)
arose on the cash flow hedges during the year.
Fair values of derivative financial instruments:
Forward foreign exchange – in cash flow hedges
Forward foreign exchange – not in a hedge
2013
2012
Total
assets
$m
1.8
–
1.8
Total
liabilities
$m
–
(0.1)
(0.1)
Total
assets
$m
0.1
–
0.1
Total
liabilities
$m
–
(0.1)
(0.1)
Hunting PLC 2013 Annual Report and Accounts 119
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
27. Derivatives and Hedging continued
(b) Hedge of Net Investments in Foreign Operations
During 2012, the Group had US dollar denominated borrowings, which it designated as a hedge of the net investment in its US
subsidiaries. At 31 December 2012, the carrying amount of net US dollar borrowings was $350.6m. During 2012, foreign exchange gains
of $16.0m on translation of borrowings into Sterling was recognised in the cumulative translation reserve. From 1 January 2013, the hedge
of the net investment in US subsidiaries ceased and no further foreign exchange gains or losses have been recognised in the cumulative
translation reserve for this hedge.
28. Financial Instruments: Fair Values
The carrying amounts of each measurement category of the Group’s financial assets and financial liabilities are stated below, together
with a comparison of fair value and carrying amount for each class of financial asset and financial liability.
Group
Year ended 31 December 2013
Carrying amount
Available for
sale financial
assets
$m
Financial asset
at fair value
through profit
or loss
$m
Loans and
receivables
$m
Financial
liabilities
measured at
amortised
cost
$m
Derivatives
at fair value
through equity
(cash flow
hedges)
$m
Financial
liabilities held
for trading
$m
Non-current assets
Investments (note 18)
Trade and other receivables (note 20)
Current assets
Trade and other receivables1 (note 20)
Investments (note 18)
Cash at bank and in hand
Current liabilities
Trade and other payables2 (note 23)
Provisions3
Borrowings (note 24)
Non-current liabilities
Borrowings (note 24)
Other payables2 (note 23)
Provisions3
–
4.3
1.0
–
8.0
–
240.1
2.0
167.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
413.8
1.0
8.0
–
–
–
–
–
(151.6)
(7.9)
(135.9)
(239.3)
(17.5)
(19.4)
(571.6)
Total
$m
9.0
4.3
Fair value
total
$m
9.0
4.3
241.9
2.0
167.4
241.9
2.0
167.4
(151.7)
(7.9)
(135.9)
(151.7)
(7.9)
(135.9)
(239.3)
(17.5)
(19.4)
(239.3)
(17.5)
(19.4)
–
–
–
–
–
(0.1)
–
–
–
–
–
–
–
1.8
–
–
–
–
–
–
–
–
(0.1)
1.8
(147.1)
(147.1)
Notes:
1. Prepayments and other non-financial assets are excluded from the trade and other receivables balance, as this analysis is required for financial instruments only.
2. Non-financial liabilities are excluded from the trade and other payables balance, as this analysis is required for financial instruments only.
3. Non-financial liabilities are excluded from the provisions balance, as this analysis is required for financial instruments only.
120 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 28. Financial Instruments: Fair Values continued
Restated
Year ended 31 December 2012
Carrying amount
Available for
sale financial
assets
$m
Financial asset
at fair value
through profit
or loss
$m
Loans and
receivables
$m
Financial
liabilities
measured at
amortised
cost
$m
Derivatives
at fair value
through equity
(cash flow
hedges)
$m
Financial
liabilities held
for trading
$m
Non-current assets
Investments (note 18)
Trade and other receivables (note 20)
Current assets
Trade and other receivables1 (note 20)
Investments (note 18)
Cash at bank and in hand
Current liabilities
Trade and other payables2 (note 23)
Provisions3
Borrowings (note 24)
Non-current liabilities
Borrowings (note 24)
Other payables (note 23)
Provisions3
–
2.7
0.7
–
5.7
–
258.7
5.1
165.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
431.8
0.7
5.7
–
–
–
–
–
(193.2)
(20.3)
(132.1)
(304.7)
(12.4)
(22.1)
(684.8)
Total
$m
6.4
2.7
Fair value
total
$m
6.4
2.6
258.8
5.1
165.3
258.8
5.1
165.3
(193.3)
(20.3)
(132.1)
(193.3)
(20.3)
(132.1)
(304.7)
(12.4)
(22.1)
(304.7)
(12.4)
(22.1)
–
–
–
–
–
(0.1)
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
(0.1)
0.1
(246.6)
(246.7)
Notes:
1. Prepayments and other non-financial assets are excluded from the trade and other receivables balance, as this analysis is required for financial instruments only.
2. Non-financial liabilities are excluded from the trade and other payables balance, as this analysis is required for financial instruments only.
3. Non-financial liabilities are excluded from the provisions balance, as this analysis is required for financial instruments only.
The fair value of forward foreign exchange contracts is determined by the deviation in future expected cash flows calculated by reference
to the movement in market quoted exchange rates. The available for sale unlisted investments are carried at cost, which is the Directors’
best estimate of fair value as there is no active market in which these are traded. The Directors do not intend to dispose of these unlisted
investments. The fair value of listed equities and mutual funds is based on their current bid prices, which is considered to be the most
representative of fair value, in an active market at the balance sheet date. The fair values of the environmental escrow and the promissory
note, included in non-current investments, are determined by discounting the expected future cash flows. The fair value of the contingent
consideration arrangements was estimated by applying the income approach and appropriate discount rates. The fair values of non-US
dollar denominated financial instruments are translated into US dollars using the year-end exchange rate.
The carrying value of net trade receivables, accrued revenue, other receivables, deposits maturing after three months, cash and cash
equivalents, trade payables, accruals, other payables, provisions, bank overdrafts, unsecured bank loans and other unsecured loans
approximates their fair value.
Hunting PLC 2013 Annual Report and Accounts 121
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
28. Financial Instruments: Fair Values continued
The inputs used to determine the fair value of unlisted equity investments, the environmental escrow and the contingent consideration
arrangements are not based on observable market data and therefore their fair value measurements can be categorised in Level 3 of the
fair value hierarchy. The inputs used to determine the fair value of derivative financial instruments are inputs other than quoted prices that
are observable and so the fair value measurement can be categorised in Level 2 of the fair value hierarchy. The fair value of listed equity
investments and mutual funds is based on quoted market prices and so the fair value measurement can be categorised in Level 1 of the
fair value hierarchy.
The following table presents the Group’s financial assets and liabilities that are measured at fair value at 31 December and shows the
level in the fair value hierarchy in which the fair value measurements are categorised. There were no transfers between Level 1 and Level
2 during the year.
Non-current investments
Unlisted equity investments
Listed equity investments and mutual funds
Environmental escrow
Derivatives held for trading
Derivative financial liabilities
Derivatives at fair value through equity
Derivative financial assets
Current liabilities
Contingent consideration
Total
Non-current investments
Unlisted equity investments
Listed equity investments and mutual funds
Environmental escrow
Derivatives held for trading
Derivative financial liabilities
Derivatives at fair vaue through equity
Derivative financial assets
Current liabilities
Contingent consideration
Total
The fair value hierarchy has the following levels:
Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability.
Level 3 – inputs for the asset or liability that are not based on observable market data.
The table below shows a reconciliation of the fair value measurements in Level 3 of the fair value hierarchy.
At 1 January 2013
Additions
Unwinding of discount
Cash paid
At 31 December 2013
122 Hunting PLC 2013 Annual Report and Accounts
Contingent
consideration
$m
Available for
sale financial
assets
$m
(4.8)
–
(0.2)
2.0
(3.0)
0.7
0.3
–
–
1.0
Fair value
31 December
2013
$m
Level 1
$m
Level 2
$m
Level 3
$m
0.4
8.0
0.6
(0.1)
1.8
(3.0)
7.7
–
8.0
–
–
–
–
8.0
–
–
–
(0.1)
1.8
–
1.7
0.4
–
0.6
–
–
(3.0)
(2.0)
Fair value
31 December
2012
$m
Level 1
$m
Level 2
$m
Level 3
$m
0.3
5.7
0.4
(0.1)
0.1
(4.8)
1.6
–
5.7
–
–
–
–
5.7
–
–
–
(0.1)
0.1
–
–
0.3
–
0.4
–
–
(4.8)
(4.1)
Total
$m
(4.1)
0.3
(0.2)
2.0
(2.0)
Financial Statements 28. Financial Instruments: Fair Values continued
There has been no impact on the income statement or other comprehensive income from the change in fair value of the unlisted equity
investments. The change in the fair value of the environmental escrow of $0.2m (2012 – $nil) was taken through other comprehensive
income.
At 1 January 2012
Additions
Release of contingent consideration liability – credited to operating income (note 5)
At 31 December 2012
Contingent
consideration
$m
Available for
sale financial
assets
$m
(6.6)
–
1.8
(4.8)
0.3
0.4
–
0.7
Total
$m
(6.3)
0.4
1.8
(4.1)
The release of the contingent liability of $1.8m to the income statement in 2012 was in relation to the Doffing contingent consideration
arrangement, as the future payments were not likely to be required. During 2013, $2.0m (2012 – $nil) was paid to the sellers of Specialty
in respect of the contingent consideration arrangement. The remaining contingent consideration liability relates to the Specialty
contingent consideration arrangement.
The fair value of the contingent consideration is based on cash flows discounted using a risk free rate of 11% (2012 – 11%). The fair value
of the environmental escrow is based on cash flows discounted using a rate of 3% (2012 – 3%).
Having performed a sensitivity analysis on the contingent consideration and environmental escrow fair value calculations, management
believes that no reasonably possible change in any of the key assumptions would cause the fair value to change materially.
Company
Non-current assets
Other investments (note 18)
Other receivables (note 20)
Current assets
Other receivables1 (note 20)
Cash at bank and in hand
Current liabilities
Other payables (note 23)
Provisions
Borrowings (note 24)
Non-current liabilities
Borrowings (note 24)
Other payables (note 23)
Provisions
Year ended 31 December 2013
Carrying amount
Available
for sale
financial
assets
$m
Financial
liabilities
measured at
amortised
cost
$m
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
(10.8)
(0.2)
(9.9)
(85.6)
(9.0)
(0.3)
Loans and
receivables
$m
–
18.0
28.0
31.4
–
–
–
–
–
–
77.4
0.6
(115.8)
Total
$m
0.6
18.0
28.0
31.4
(10.8)
(0.2)
(9.9)
(85.6)
(9.0)
(0.3)
(37.8)
Fair value
total
$m
0.6
18.0
28.0
31.4
(10.8)
(0.2)
(9.9)
(85.6)
(9.0)
(0.3)
(37.8)
Hunting PLC 2013 Annual Report and Accounts 123
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
28. Financial Instruments: Fair Values continued
Non-current assets
Other investments (note 18)
Other receivables (note 20)
Current assets
Other receivables1 (note 20)
Cash at bank and in hand
Current liabilities
Other payables (note 23)
Provisions
Borrowings (note 24)
Non-current liabilities
Borrowings (note 24)
Other payables (note 23)
Provisions
Year ended 31 December 2012
Carrying amount
Available
for sale
financial
assets
$m
Financial
liabilities
measured at
amortised
cost
$m
0.4
–
–
–
–
–
–
–
–
–
–
–
–
–
(12.0)
(0.4)
(4.9)
(87.2)
(6.7)
(0.6)
Loans and
receivables
$m
–
19.3
31.6
2.3
–
–
–
–
–
–
53.2
0.4
(111.8)
Total
$m
0.4
19.3
31.6
2.3
(12.0)
(0.4)
(4.9)
(87.2)
(6.7)
(0.6)
(58.2)
Fair value
total
$m
0.4
19.2
31.6
2.3
(12.0)
(0.4)
(4.9)
(87.2)
(6.7)
(0.6)
(58.3)
Notes:
1. Prepayments and other non-financial assets are excluded from the trade and other receivables balance, as this analysis is required for financial instruments only.
The fair values of the environmental escrow and the promissory note are determined by discounting the expected future cash flows. The
inputs used to determine the fair value of the environmental escrow are not based on observable data and therefore the fair value
measurement can be categorised in Level 3 of the fair value hierarchy.
The fair value of the environmental escrow is based on cash flows discounted using a rate of 3% (2012 – 3%). There has been no change
in the fair value of the environmental escrow during 2013 and therefore there has been no impact on the income statement or other
comprehensive income.
Having performed a sensitivity analysis on the environmental escrow fair value calculations, management believes that no reasonably
possible change in any of the key assumptions would cause the fair value to change materially.
29. Financial Risk Management
The Group’s activities expose it to certain financial risks, namely market risk (including currency risk, fair value interest risk and cash flow
interest risk), credit risk and liquidity risk. The Group’s risk management strategy seeks to mitigate potential adverse effects on its financial
performance. As part of its strategy, both primary and derivative financial instruments are used to hedge certain risk exposures.
There are clearly defined objectives and principles for managing financial risk established by the Board of Directors, with policies,
parameters and procedures covering the specific areas of funding, banking relationships, foreign currency and interest rate exposures and
cash management.
The Group’s treasury function is responsible for implementing the policies and providing a centralised service to the Group for funding,
foreign exchange, interest rate management and counterparty risk management. It is also responsible for identifying, evaluating and
hedging financial risks in close co-operation with the Group’s operating companies.
124 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 29. Financial Risk Management continued
(a) Foreign Exchange Risk
The Group’s international base is exposed to foreign exchange risk from its investing, financing and operating activities, particularly in
respect of Sterling. Foreign exchange risks arise from future transactions and cash flows and from recognised monetary assets and
liabilities that are not denominated in the functional currency of the Group’s local operations.
The Group’s material foreign exchange rates are:
Average exchange rate to US dollars
Year-end exchange rate to US dollars
Sterling
Canadian dollar
2013
0.64
0.60
2012
0.63
0.62
2013
1.03
1.06
2012
1.00
1.00
(i) Transactional Risk
The exposure to exchange rate movements in significant future transactions and cash flows is hedged by using forward foreign exchange
contracts and currency options. Certain forward foreign exchange contracts have been designated as hedging instruments of highly
probable forecast transactions. Operating companies prepare quarterly rolling twelve month cash flow forecasts to enable working
capital currency exposures to be identified. Currency exposures arise where the cash flows are not in the functional currency of the
entity. Exposures arising from committed long-term projects beyond a twelve month period are also identified. The currency flows to be
hedged are committed foreign currency transactions greater than £250,000 equivalent per month and/or currency flows that in aggregate
exceed £500,000 equivalent per annum.
No speculative positions are entered into by the Group.
The table below shows the carrying values of the Group’s financial instruments at 31 December, including derivative financial
instruments, on which exchange differences would potentially be recognised in the income statement in the following year. The table
excludes available for sale financial assets, derivatives designated in a cash flow hedge and loans to subsidiaries that are considered to be
part of the net investment in a foreign operation, as exchange differences arising on these are recognised in other comprehensive income.
At 31 December 2013
Functional currency of Group’s entities:
Sterling
US dollars
Canadian dollars
Singapore dollars
Euro
Chinese CNY
Other currencies
Sterling
$m
US dollars
$m
Currency of denomination
Canadian
dollars
$m
Singapore
dollars
$m
–
(95.1)
–
–
(1.1)
–
–
(96.2)
17.4
–
(5.5)
1.6
1.3
(0.7)
0.4
14.5
–
6.8
–
–
–
–
–
6.8
1.0
(0.4)
–
–
–
–
–
0.6
Euro
$m
(1.1)
0.7
–
–
–
–
–
(0.4)
Chinese
CNY
$m
Other
currencies
$m
–
4.8
–
–
–
–
0.2
5.0
0.7
(0.8)
–
–
–
–
–
(0.1)
Total
$m
18.0
(84.0)
(5.5)
1.6
0.2
(0.7)
0.6
(69.8)
The US dollar denominated financial instruments consist of cash balances, trade receivables, accrued revenue, trade payables, accrued
expenses and intra-group loans. The Sterling denominated financial instruments consist of intra-group loans, cash, bank overdrafts and
accrued expenses.
Hunting PLC 2013 Annual Report and Accounts 125
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
29. Financial Risk Management continued
At 31 December 2012
Functional currency of Group’s entities:
Sterling
US dollars
Canadian dollars
Singapore dollars
Euro
Chinese CNY
Other currencies
Sterling
$m
US dollars
$m
Currency of denomination
Canadian
dollars
$m
Singapore
dollars
$m
–
(0.4)
–
(0.2)
(0.8)
–
–
(1.4)
51.9
–
3.4
2.5
(0.4)
(12.0)
0.4
45.8
5.8
–
–
–
–
–
–
5.8
(0.4)
(0.9)
–
–
–
–
–
(1.3)
Euro
$m
0.9
–
–
–
–
–
–
0.9
Other
currencies
$m
(0.5)
0.1
–
–
–
–
0.2
(0.2)
Total
$m
57.7
(1.2)
3.4
2.3
(1.2)
(12.0)
0.6
49.6
The US dollar denominated financial instruments consist mainly of cash balances, trade receivables and intra-group loans. The Canadian
dollar denominated financial instruments consist mainly of intra-group loans, warranty provisions, the refund due from the Canadian tax
authority and the Field Aviation promissary note and environmental escrow.
(ii) Translational Risk
Foreign exchange risk also arises from the Group’s investments in foreign operations. Average rate options are periodically used to reduce
translation risk on the Group’s consolidated profit before tax if the Group considers there to be a significant exposure.
The foreign exposure to net investments in foreign operations is managed using borrowings denominated in the same functional currency
as that of the hedged assets. The borrowings are designated as a hedge of the net investment in foreign operations. The foreign exchange
exposure primarily arises from Sterling denominated net investments.
(b) Interest Rate Risk
Variable interest rates on cash at bank, deposits, overdrafts and borrowings expose the Group to cash flow interest risk and fixed interest
rates on loans and deposits expose the Group to fair value interest rate risk. The treasury function manages the Group’s exposure to
interest rate risk and uses interest rate swaps and caps, when considered appropriate.
(c) Credit Risk
The Group’s credit risk arises from its available for sale financial assets, pension assets, cash and cash equivalents, investments, derivative
financial instruments and outstanding receivables.
At the year end, the Group had credit risk exposures to a wide range of counterparties. Credit risk exposure is continually monitored and
no individual exposure is considered to be significant in the context of the ordinary course of the Group’s activities.
Exposure limits are set for each approved counterparty, as well as the types of transactions that may be entered into. Approved
institutions that the treasury function can invest surplus cash with all must have a minimum of an A1, P1 or F1 short-term rating from
Standard and Poor’s, Moody’s or Fitch rating agencies and AAA rating for Money Market Funds.
The majority of cash and cash equivalents, which total $167.4m (2012 – $165.3m) at the year end, and current investments of $2.0m
(2012 – $5.1m) have been deposited with banks with Fitch short-term ratings of F1 to F1+. All cash and cash equivalents and current
investments are expected to be fully recovered.
The credit risk of foreign exchange contracts is calculated before the contract is acquired and compared to the credit risk limit set for
each counterparty. Credit risk is calculated as a fixed percentage of the nominal value of the instrument.
Trade and other receivables are continuously monitored. Credit account limits are primarily based on the credit quality of the customer
and past experience through trading relationships. To reduce credit risk exposure from outstanding receivables, the Group has taken out
credit insurance with an external insurer, subject to certain conditions.
The Company operates a pension scheme in the UK, which includes a funded defined benefit section with pension plan net assets of
$29.6m (2012 – $22.8m). The majority of the Scheme’s defined benefits are now covered by insurance company annuity policies,
meaning the pensions-related risks have largely been eliminated. The pension buy-in has been effected by using two insurers, so as to
spread its credit risk. The credit rating of these insurers is monitored.
126 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 29. Financial Risk Management continued
The Company also operates a defined benefit pension scheme in the US, which is unfunded. Contributions are paid into a separate
investment vehicle and invested in a wide portfolio of US mutual funds that are recognised by the Company as non-current investments.
Investments at the year end amounted to $8.0m (2012 – $5.7m) and are expected to be fully recovered.
(d) Liquidity Risk
The Group needs to ensure that it has sufficient liquid funds available to support its working capital and capital expenditure
requirements. All subsidiaries submit weekly and bi-monthly cash forecasts to the treasury function to enable them to monitor the
Group’s requirements.
The Group has sufficient credit facilities to meet both its long and short-term requirements.
The Group’s credit facilities are provided by a variety of funding sources and total $688.8m (2012 – $676.5m) at the year end. The
facilities comprise $621.1m (2012 – $609.6m) of committed facilities and $67.7m (2012 – $66.9m) of uncommitted facilities. Of the
uncommitted facilities, $nil (2012 – $0.3m) is secured on the machinery that the loan was used to purchase and $67.7m (2012 – $66.6m)
is unsecured.
The committed facilities comprise the Sterling denominated £375.0m ($621.1m) multi-currency loan facility from a syndicate of ten banks
(2012 – £375.0m; $609.6m). This facility expires on 5 August 2016 and is unsecured. A commitment fee is payable on the undrawn
amount.
The Group’s treasury function maintains flexibility in funding by maintaining availability under committed credit facilities. The Group has
the following undrawn committed borrowing facilities available at the year end:
Floating rate:
Expiring between two and five years
2013
$m
2012
$m
378.0
305.3
Surplus funds are placed in short-term deposits with approved banks and with AAA rated Money Market Funds.
The tables below analyse the Group’s and Company’s non-derivative financial liabilities into relevant maturity groupings based on the
remaining period at the balance sheet date to the contractual maturity date of the financial liabilities. The amounts are the contractual,
undiscounted cash flows. The carrying amounts in the balance sheet are the discounted amounts. Balances due within one year have
been included in the maturity analysis at their carrying amounts, as the impact of discounting is not significant.
Group
Non-derivative financial liabilities:
Trade payables
Accruals
Other payables
Provisions
Unsecured bank loans
Other unsecured loans
Bank overdrafts
2013
On demand
or within
one year
$m
Between
two and
five years
$m
After
five years
$m
75.1
70.6
5.9
7.8
24.2
2.1
115.0
300.7
–
9.5
–
22.5
248.6
–
–
280.6
–
–
8.0
4.2
–
3.9
–
16.1
Total
$m
75.1
80.1
13.9
34.5
272.8
6.0
115.0
597.4
Hunting PLC 2013 Annual Report and Accounts 127
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
29. Financial Risk Management continued
Non-derivative financial liabilities:
Trade payables
Accruals
Other payables
Provisions
Secured bank loans
Unsecured bank loans
Other unsecured loans
Bank overdrafts
Restated
2012
On demand
or within
one year
$m
Between
two and
five years
$m
After
five years
$m
100.5
82.4
10.3
20.3
0.3
17.7
2.0
118.1
351.6
–
6.7
5.7
20.1
–
320.7
6.0
–
359.2
–
–
–
9.9
–
–
–
–
9.9
Total
$m
100.5
89.1
16.0
50.3
0.3
338.4
8.0
118.1
720.7
The Group had no net-settled financial liabilities at the year end (2012 – none).
The table below analyses the Group’s derivative financial instruments, which will be settled on a gross basis, into maturity groupings
based on the period remaining from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the
contractual, undiscounted cash flows.
On demand or within one year
2013
$m
2012
$m
52.6
(50.7)
49.1
(48.8)
On demand
or within
one year
$m
2013
Between
two and
five years
$m
5.5
6.6
5.1
0.2
0.2
3.3
20.9
–
85.6
9.0
–
0.3
–
94.9
Total
$m
5.5
92.2
14.1
0.2
0.5
3.3
115.8
Currency derivatives – held for trading
– inflows
– outflows
Company
Non-derivative financial liabilities:
Payables to subsidiaries
Loans from subsidiaries
Accruals
Other payables
Provisions
Bank overdrafts
128 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 29. Financial Risk Management continued
Non-derivative financial liabilities:
Payables to subsidiaries
Loans from subsidiaries
Accruals
Other payables
Provisions
Bank overdrafts
On demand
or within
one year
$m
2012
Between
two and
five years
$m
1.0
2.4
10.3
0.7
0.4
2.5
17.3
–
87.2
6.7
–
0.6
–
94.5
Total
$m
1.0
89.6
17.0
0.7
1.0
2.5
111.8
The Company did not have any derivative financial liabilities.
30. Financial Instruments: Sensitivity Analysis
The following sensitivity analysis is intended to illustrate the sensitivity to changes in market variables on the Group’s and Company’s
financial instruments and show the impact on profit or loss and shareholders’ equity. Financial instruments affected by market risk
include cash and cash equivalents, borrowings, deposits and derivative financial instruments. The sensitivity analysis relates to the
position as at 31 December 2013.
The sensitivity analysis has been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the cash
and derivatives and the proportion of financial instruments in foreign currencies remain unchanged from the hedge designations in place
at 31 December 2013. The analysis excludes the impact of movements in market variables on the carrying value of pension and other
post-retirement obligations, provisions and on the non-financial assets and liabilities of foreign operations.
The following assumptions have been made in calculating the sensitivity analysis:
– Foreign exchange rate and interest rate sensitivities have an asymmetric impact on the Group’s results, that is, an increase in rates does
not result in the same amount of movement as a decrease in rates.
– For floating rate assets and liabilities, the amount of asset or liability outstanding at the balance sheet date is assumed to be
outstanding for the whole year.
– Fixed rate financial instruments that are carried at amortised cost are not subject to interest rate risk for the purpose of this analysis.
– The carrying values of financial assets and liabilities carried at amortised cost do not change as interest rates change.
Positive figures represent an increase in profit or equity.
(i) Interest Rate Sensitivity
The sensitivity rate of 0.25% (2012 – 0.25%) for US interest rates represents management’s assessment of a reasonably possible change,
based on historical volatility and a review of analysts’ research and banks’ expectations of future interest rates.
Group
The post-tax impact on the income statement, with all other variables held constant, at 31 December, for an increase of 0.25% (2012 –
0.25%) in US interest rates, is to reduce profits by $0.5m (2012 – $0.6m). If US interest rates were to decrease by 0.25% (2012 – 0.25%),
then the post-tax impact on the income statement would be to increase profits by $0.5m (2012 – $0.6m). The movements arise on US
dollar denominated borrowings. There is no impact on other comprehensive income (“OCI”) for a change in interest rates.
Company
The post-tax impact on the income statement, with all other variables held constant, at 31 December, for an increase of 0.25% (2012 –
0.25%) in the UK interest rate, is to reduce profits by $0.1m (2012 – $0.1m). If the UK interest rate were to decrease by 0.25% (2012 – 0.25%),
then the post-tax impact would be to increase profits by $0.1m (2012 – $0.1m). The movements arise on Sterling loans from subsidiaries.
There is no impact on OCI for a change in interest rates.
(ii) Foreign Exchange Rate Sensitivity
The sensitivity rate of 10% (2012 – 10%) for Sterling and Canadian dollar exchange rates represents management’s assessment of a
reasonably possible change, based on historical volatility and a review of analysts’ research and banks’ expectations of future foreign
exchange rates.
Hunting PLC 2013 Annual Report and Accounts 129
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
30. Financial Instruments: Sensitivity Analysis continued
Group
The table below shows the post-tax impact for the year of a reasonable change in foreign exchange rates, with all other variables held
constant, at 31 December.
Sterling exchange rates +10% (2012: +10%)
Sterling exchange rates –10% (2012: –10%)
Canadian dollar exchange rates +10% (2012: +10%)
Canadian dollar exchange rates –10% (2012: –10%)
2013
2012
Income
statement
$m
(12.6)
2.1
(0.1)
0.1
OCI
$m
18.6
(22.4)
(1.8)
2.2
Income
statement
$m
(1.4)
1.7
(0.4)
0.5
OCI
$m
(17.3)
21.2
(2.1)
2.6
The movements in the income statement arise from cash, bank overdrafts, intra-group balances and accrued expenses where the
functional currency of the entity is different to the currency that the monetary items are denominated in.
The movements in OCI in 2012 arise from net US dollar borrowings designated in a hedge of net investments in US subsidiaries and
Canadian and US dollar denominated loans that have been recognised as part of the Group’s net investment in foreign subsidiaries.
The movements in OCI in 2013 arise from Sterling denominated loans that have been recognised as part of the Group’s net investment in
foreign subsidiaries.
Company
The table below shows the post-tax impact for the year of a reasonably possible change in the Sterling and Canadian dollar exchange
rate, with all other variables held constant, at 31 December.
Sterling exchange rates +10% (2012: +10%)
Sterling exchange rates –10% (2012: –10%)
Canadian dollar exchange rates +10% (2012: +10%)
Canadian dollar exchange rates –10% (2012: –10%)
US dollar exchange rates +10% (2012: +10%)
US dollar exchange rates –10% (2012: –10%)
2013
Income
statement
$m
4.5
(5.6)
(0.2)
0.3
–
–
2012
Income
statement
$m
–
–
(0.2)
0.2
(1.7)
2.0
OCI
$m
–
–
–
0.1
–
–
The movement in the income statement arises from Sterling denominated receivables, cash, accrued expenses, intra-group balances and
borrowings and Canadian dollar denominated receivables.
The movement in OCI relates to the environmental escrow.
130 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 31. Post-Employment Benefits
Group
Pensions
Within the UK, the Group operates a funded pension scheme, which includes a defined benefit section with benefits linked to final
salary and a defined contribution section with benefits dependent on future investment returns. The defined benefit section is closed to
new UK employees who are offered membership of the defined contribution section. The majority of UK employees are members of one
of these arrangements.
The UK scheme is registered with HMRC for tax purposes, and is operated separately from the Group and managed by a set of trustees.
The trustees are responsible for the payment of benefits and the management of the scheme’s assets.
The UK scheme is subject to UK regulations, which require the Group and the trustees to agree a funding strategy and contributions
schedule for the defined benefit section of the UK scheme. Contributions to the defined contribution section of the UK scheme and other
Group defined contribution arrangements are payable in addition and are charged directly to profit and loss.
Risk Exposures and Investment Strategy
The weighted average duration to payment of the projected future cash flows from the defined benefit section of the UK scheme is about
16 years. The scheme is managed so that it is well funded and represents a low risk to the Group. In particular, the scheme’s assets are
invested in a range of deferred annuity and immediate annuity policies with two insurers, which largely match the benefits to be paid to
members of the scheme. This strategy significantly reduces the Group’s investment, inflation and demographic risks in relation to the
scheme’s liabilities. This is demonstrated by the relative stability of the Group’s pension asset from year to year. The position would
change materially if one of the insurers were no longer able to meet its obligations as the pension obligation ultimately rests with the
Group.
Funding Strategy
The trustees and the Group together agree a funding strategy for the scheme every three years. Under this agreement, the Group expects
to contribute $5.5m to the defined benefit section of the UK scheme in the next reporting period.
The net assets for the UK post-employment benefit scheme are:
Present value of funded obligations
Fair value of plan assets
Net asset
Changes in the net asset recognised in the balance sheet
Opening balance sheet asset
Exchange adjustments
Expense charged to income statement
Amount recognised in other comprehensive income
Employer contributions paid
Closing balance sheet asset
2013
$m
(428.2)
457.8
Restated
2012
$m
(391.4)
414.2
29.6
22.8
2013
$m
22.8
0.8
(4.1)
4.2
5.9
29.6
Restated
2012
$m
19.9
1.0
(3.8)
(0.6)
6.3
22.8
The Group has concluded that it can recognise the full amount of this surplus on the grounds that it could gain sufficient economic
benefit from a future reduction of its contributions to the scheme.
Hunting PLC 2013 Annual Report and Accounts 131
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
31. Post-Employment Benefits continued
Movements in the present value of the defined benefit obligation for the defined benefit section of the UK scheme
Opening defined benefit obligation
Exchange adjustments
Current service cost (employer)
Contributions by plan participants
Interest on benefit obligations
Remeasurements due to:
Changes in financial assumptions
Changes in demographic assumptions
Experience on benefit obligations
Benefits paid
2013
$m
391.4
9.0
5.2
0.5
15.8
15.0
5.6
2.4
(16.7)
Restated
2012
$m
350.0
16.8
4.9
0.6
16.3
20.7
–
(0.8)
(17.1)
Present value of the obligation at the end of the year
428.2
391.4
Movements in the fair value of the assets for the defined benefit section of the UK scheme
Opening fair value of plan assets
Exchange adjustments
Interest on plan assets
Actual returns over interest on plan assets
Contributions paid by employer
Contributions paid by plan participants
Benefits paid
Closing fair value of plan assets
2013
$m
414.2
9.8
16.9
27.2
5.9
0.5
(16.7)
457.8
Restated
2012
$m
369.9
17.8
17.4
19.3
6.3
0.6
(17.1)
414.2
The “Actual returns over interest on plan assets” shown in the table above principally includes the impact that the changes in financial
assumptions and demographic assumptions, as well as membership experience, have had on the value of the insurance annuity policies.
The gain due to these factors offsets the corresponding loss on the re-measurement of the defined benefit obligation, demonstrating
that the pensions-related risks have been mitigated by the scheme’s investment strategy. In particular, the gain on the assets is greater
than the loss on the defined benefit obligation because the value of the insurance annuity policies exceeds the value of the defined
benefit obligation.
The major asset categories for the defined benefit section of the UK scheme are:
Insurance annuity policies
Cash/other
Fair value of plan assets
The scheme does not invest in property occupied by the Group or in financial securities issued by the Group.
2013
$m
452.7
5.1
457.8
2012
$m
413.5
0.7
414.2
132 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 31. Post-Employment Benefits continued
The amounts recognised in the income statement are:
Current service cost – recognised within operating expenses
Net interest on the defined benefit asset – recognised within interest income
Total expense included within staff costs (note 10)
The current service cost includes $1.3m (2012 – $1.4m) of administration costs.
2013
$m
5.2
(1.1)
4.1
2012
$m
4.9
(1.1)
3.8
In addition, employer contributions of $9.4m (2012 – $7.1m) for various Group defined contribution arrangements (including the defined
contribution section of the UK scheme) are recognised in the income statement.
Special Events
During 2013, a further tranche of benefits was secured with one of the insurers. The effect of this has been recognised in other
comprehensive income.
The principal assumptions used for accounting purposes reflect prevailing market conditions and are:
Discount rate
Future pension increases
Future salary increase
Mortality assumption – life expectancy
Male aged 65 at the accounting date
Female aged 65 at the accounting date
Male aged 65 in 20 years
Female aged 65 in 20 years
2013
2012
4.4% p.a. 4.3% p.a.
3.6% p.a. 3.1% p.a.
5.6% p.a. 5.1% p.a.
2013
2012
24.8
27.0
27.4
29.4
24.5
25.9
27.6
27.8
The assumptions used to determine the end-of-year benefit obligations are also used to calculate the following year’s cost.
Sensitivity Analysis
Apart from the assumption for salary increases, the change in the obligation arising as a result of changes in the above assumptions is
broadly matched by a corresponding change in the value of the insurance policies, so that the impact on the net balance sheet asset is
significantly dampened.
A 0.25% p.a. increase in the salary increase assumption would increase the defined benefit obligation by about $1.7m without having
any impact on the value of the scheme’s assets.
Hunting PLC 2013 Annual Report and Accounts 133
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
31. Post-Employment Benefits continued
Unfunded Defined Benefit Pension Scheme
The Group also operates a cash balance arrangement in the US for certain executives. Members build up benefits in this arrangement by
way of notional contributions and notional investment returns. Actual contributions are paid into an entirely separate investment vehicle
held by the Company, which is used to pay benefits due from the cash balance arrangement when the member retires.
Under IAS 19, the cash balance arrangement is accounted for as an unfunded defined benefit scheme.
The amounts recognised in the income statement during the year were $0.2m (2012 – $0.2m) for the employer’s current service cost
(recognised in operating expenses) and $0.1m (2012 – $0.2m) interest cost (recognised in interest expense).
Movements in the present value of the obligation for the defined US Deferred Compensation Plan
Present value of the obligation at the start of the year
Current service cost (equal to the notional contributions)
Contributions by plan participants
Interest on benefit obligations
Remeasurement – excess of notional investment returns over interest cost
Present value of the obligation at the end of the year
2013
$m
5.7
0.2
0.1
0.1
1.9
8.0
2012
$m
4.5
0.2
0.1
0.2
0.7
5.7
Company
The Company has no employees and therefore does not participate in any of the above schemes, although it does guarantee the
contributions due by the participating employers.
32. Share Capital and Share Premium
Group and Company
At 1 January
Shares issued – share option schemes and awards
At 31 December
At 1 January
Shares issued – share option schemes and awards
At 31 December
Number of
Ordinary
shares of
25p each
Number
147,049,241
693,519
147,742,760
Number of
Ordinary
shares of
25p each
Number
146,316,186
733,055
147,049,241
2013
Ordinary
shares of
25p each
$m
61.0
0.3
61.3
2012
Ordinary
shares of
25p each
$m
60.7
0.3
61.0
Share
premium
$m
149.1
1.5
150.6
Share
premium
$m
146.9
2.2
149.1
There are no restrictions attached to any of the Ordinary shares in issue and all Ordinary shares carry equal voting rights. The rights
attached to the Company’s Ordinary shares are summarised on page 47. All of the Ordinary shares in issue are fully paid.
At 31 December 2013, 986,731 (2012 – 986,731) Ordinary shares were held by an Employee Benefit Trust. Details of the carrying
amount are set out in note 34.
134 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 33. Other Components of Equity
Group
Year ended 31 December 2013
At 1 January restated (note 1)
Exchange adjustments net of tax
Fair value gains and losses:
– gain on available for sale investment arising during the year net of tax
– gains originating on cash flow hedges arising during the year net of tax
– gains transferred to income statement on disposal of cash flow hedges net of tax
Share options
– value of employee services
– discharge
At 31 December
Year ended 31 December 2012 (Restated)
At 1 January restated (note 1)
Exchange adjustments net of tax
Release of foreign exchange adjustments on disposal of subsidiary net of tax
Fair value gains and losses:
– gains originating on cash flow hedges arising during the year net of tax
– gains transferred to income statement on disposal of cash flow hedges net of tax
Share options
– value of employee services
– discharge
At 31 December
Cash flow
hedge
reserve
$m
0.1
–
–
1.5
(0.2)
–
–
1.4
Cash flow
hedge
reserve
$m
(0.5)
–
–
0.7
(0.1)
–
–
0.1
Foreign
currency
translation
reserve
$m
29.2
(1.7)
–
–
–
–
–
27.5
Foreign
currency
translation
reserve
$m
20.3
11.1
(2.2)
–
–
–
–
29.2
Other
reserves
$m
12.7
–
0.2
–
–
3.4
(3.6)
12.7
Other
reserves
$m
11.0
0.5
–
–
–
4.0
(2.8)
12.7
Other reserves include share option reserves, capital redemption reserves and available for sale financial assets reserves.
Company
Year ended 31 December 2013
At 1 January
Fair value gains and losses:
– gain on available for sale financial investment arising during the year
Share options and awards
– value of employee services
– discharge
At 31 December
Capital
redemption
reserve
$m
Share option
reserve
$m
Foreign
currency
translation
reserve
$m
Other reserves
$m
0.2
12.5
(19.2)
–
–
–
0.2
–
3.4
(3.6)
12.3
–
–
(19.2)
–
0.2
–
–
0.2
Total
$m
42.0
(1.7)
0.2
1.5
(0.2)
3.4
(3.6)
41.6
Total
$m
30.8
11.6
(2.2)
0.7
(0.1)
4.0
(2.8)
42.0
Total
$m
(6.5)
0.2
3.4
(3.6)
(6.5)
Hunting PLC 2013 Annual Report and Accounts 135
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
33. Other Components of Equity continued
Year ended 31 December 2012
At 1 January
Exchange adjustments
Share options and awards
- value of employee services
- discharge
At 31 December
34. Retained Earnings
At 1 January restated (note 1)
Profit for the year
Remeasurement of defined benefit pension schemes net of tax
Dividends paid
Treasury shares
– purchase of Treasury shares
Share options and awards
– discharge
– taxation
Other
Capital
redemption
reserve
$m
Share option
reserve
$m
0.2
–
–
–
0.2
10.8
0.5
4.0
(2.8)
12.5
Foreign
currency
translation
reserve
$m
(38.7)
19.5
–
–
(19.2)
Total
$m
(27.7)
20.0
4.0
(2.8)
(6.5)
Group
Company
2013
$m
1,050.9
117.9
2.8
(42.5)
(6.7)
9.2
(1.3)
0.1
Restated
2012
$m
882.4
202.3
(0.7)
(36.2)
(1.3)
4.6
(0.4)
0.2
2013
$m
247.0
52.1
–
(42.5)
2012
$m
245.6
34.3
–
(36.2)
(6.7)
(1.3)
9.2
–
–
4.6
–
–
At 31 December
1,130.4
1,050.9
259.1
247.0
The taxation charge taken directly to equity of $1.3m (2012 – $0.4m) comprises a current tax credit of $1.0m (2012 – $nil) and a deferred
tax charge of $2.3m (2012 – $0.4m).
Retained earnings include the following amounts in respect of the carrying amount of Treasury shares:
Cost:
At 1 January
Purchase of Treasury shares
Disposal of Treasury shares
At 31 December
Group
2013
$m
(12.0)
(6.7)
4.9
(13.8)
2012
$m
(12.3)
(1.3)
1.6
(12.0)
Company
2013
$m
2012
$m
(12.0)
(6.7)
4.9
(13.8)
(12.3)
(1.3)
1.6
(12.0)
The loss on disposal of Treasury shares during the year, which is recognised in retained earnings, was:
Loss on disposal
Group
Company
2013
$m
(4.9)
2012
$m
(1.6)
2013
$m
(4.9)
2012
$m
(1.6)
136 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 34. Retained Earnings continued
Company
In accordance with the exemption allowed by Section 408 of the Companies Act 2006, the Company has not presented its own income
statement and statement of comprehensive income. A profit of $52.1m (2012 – $34.3m) has been accounted for in the financial
statements of the Company.
35. Capital Risk Management
The Group’s capital employed (a non-GAAP measure) consists of equity and net debt.
Total equity
Net debt
Capital employed
Gearing
2013
$m
Restated
2012
$m
1,414.8
205.8
1,332.7
266.4
1,620.6
1,599.1
15%
20%
Capital employed is managed with the aim of maintaining an appropriate level of financing available for the Group’s activities. The
balance of debt and equity, as reflected in the gearing ratio, which is net debt expressed as a percentage of total equity, is managed
having due regard to the respective cost of funds and their availability.
The Group’s net debt is monitored on a daily basis and is managed by the control of working capital, dividend and capital expenditure
payments and the purchase and disposal of assets and businesses. The level of net debt and related gearing ratio of 15% at 31 December
2013 is considered comfortable, with adequate headroom remaining, giving management ongoing flexibility.
For debt funding, the Group ensures that banking and other borrowing covenants are complied with, and that appropriate forecast
headroom exists, to ensure that borrowing facilities remain in place. The main financial covenants attached to the £375m committed
bank facility require EBITDA to cover net finance charges by a minimum of four times and net debt to be no more than three times
adjusted EBITDA. For covenant testing purposes, the Group’s EBITDA is adjusted to include the share of associates’ post-tax results and
exclude the fair value charge for share awards. EBITDA, for covenant test purposes, is based on the previous twelve month period,
measured twice yearly at 30 June and 31 December. The covenants are monitored on a monthly basis and all external covenant
requirements have been met during the year. Both key bank covenant metrics at year end were adequately covered.
Return on average capital employed is a KPI management uses to assess business unit performance. The Group return on capital
employed has fallen from 13% during 2012 to 12% in 2013 reflecting the ongoing capital investment programme on expansion projects,
which do not provide an immediate financial return. Rates of capital return are expected to increase as these expansion projects become
operational and contribute to the Group results.
Changes in equity arise from the retention of earnings and, from time to time, issues of share capital. The Board considers each ordinary
dividend proposed based on the merits of the information available to it at the time. Consideration is given to the financial projections of
business performance and capital investment needs, together with feedback from shareholder discussions.
The Group operates a centralised treasury function with policies and procedures approved by the Board. These cover funding, banking
relationships, foreign currency, interest rate exposures, cash management and the investment of surplus cash. Further detail on financial
risks is provided within note 29.
The Group has significant foreign operations and hence results originate in a number of currencies, particularly in Sterling and Singapore
dollars. As a result, the Group’s financial statements, which are reported in US dollars, are subject to the effects of foreign exchange rate
fluctuations with respect to currency conversions. Currency options can be used to reduce currency risk movements on the Group’s
results. Currency exposure on the balance sheet is, where practical, reduced by financing assets with borrowings in the same currency.
Spot and forward foreign exchange contracts are used to cover the net exposure of purchases and sales in non-domestic currencies.
Hunting PLC 2013 Annual Report and Accounts 137
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
36. Dividends Paid
Group and Company
Ordinary dividends:
2013 interim paid
2012 final paid
2012 interim paid
2011 final paid
2013
Cents
per share
2012
$m
Cents
per share
7.7
21.3
–
–
29.0
11.3
31.2
–
–
42.5
–
–
7.1
17.6
24.7
$m
–
–
10.5
25.4
35.9
Interim dividends per share have been converted from pence per share into cents per share using the exchange rate on the date they were paid and final dividends have been converted
into cents per share using the exchange rate on the date they were approved.
A final dividend of 21.8c per share has been proposed by the Board, amounting to an estimated distribution of $32m. The dividend will
be paid in Sterling on 27 May 2014 and the Sterling value of the dividend payable per share will be fixed and announced approximately
two weeks prior to the payment date based on the average spot exchange rate over the three business days preceding the announcement
date. The proposed final dividend is subject to approval by the shareholders at the Annual General Meeting to be held on 16 April 2014
and has not been provided for in these financial statements.
37. Share-based Payments
Group and Company
(a) Executive Share Options
The Company used to operate an executive share option scheme, which granted options to eligible employees. Under this scheme, the
final granting of options occurred on 4 March 2008 and the final vesting of options occurred on 4 March 2011. There is no longer a
charge to the income statement attributable to this scheme. Following successful vesting of the options, the employee, subject to
continued employment, has seven years in which to exercise the option. Details of movements in the outstanding share options are set
out below.
Share Option Movements During the Year
Outstanding at beginning of the year
Exercised during the year
Lapsed during the year
Outstanding and exercisable at the year end
2013
2012
Weighted
average
exercise price
(p)
348
318
–
354
Number of options
2,006,243
(348,096)
–
1,658,147
Weighted
average
exercise price
(p)
338
294
785
348
Number of options
2,539,424
(524,918)
(8,263)
2,006,243
Options were granted with an exercise price equal to the average closing mid-market price of the Company’s share price for the three
trading days prior to the date of grant.
The weighted average share price at the date of exercise was 883.0p (2012 – 904.0p).
Share Options Outstanding at the Year End
Executive Share Options 2003 – vested
Executive Share Options 2004 – vested
Executive Share Options 2005 – vested
Executive Share Options 2006 – vested
Executive Share Options 2007 – vested
Executive Share Options 2008 – vested
138 Hunting PLC 2013 Annual Report and Accounts
2013
Number of
options
–
478,754
409,536
323,014
229,659
217,184
2012
Number of
options
Exercise
price range
(p)
58,850
562,964
493,820
350,168
273,602
266,839
79.0
116.9
220.7
383.0
640.0
784.5
Exercise period
14.03.06–13.03.13
31.03.07–30.03.14
09.03.08–08.03.15
08.03.09–07.03.16
06.03.10–05.03.17
04.03.11–03.03.18
1,658,147
2,006,243
Financial Statements 37. Share-based Payments continued
(b) Performance Share Plan (“PSP”)
The Company continues to operate and grant share awards and options under its performance share plan. Under the PSP, annual
conditional awards of shares and options may be made to executive Directors and senior employees. Awards and options are subject to
performance conditions and continued employment during the vesting period. The PSP are granted at nil cost.
The PSP awards made in the year will vest subject to total shareholder return (“TSR”) performance over a three year period from the date
of grant, relative to comparator companies from the Dow Jones US Oil Equipment and Services sector index and the DJ STOXX TM Oil
Equipment and Services sector index.
Details of the PSP awards and options movements during the year are set out below:
Outstanding at beginning of the year
Granted during the year
Vested during the year
Lapsed during the year
Outstanding at the end of the year
Details of PSP awards and options outstanding at 31 December 2013 are as follows:
Date of grant
26 February 2010
25 February 2011
17 April 2012
20 March 2013
Outstanding at the end of the year
Number
of awards
2013
Number
of awards
2012
712,056
177,027
(171,910)
(148,509)
635,571
309,924
–
(233,439)
568,664
712,056
Number
of awards
2013
Number
of awards
2012
Normal
vesting
date
–
174,020
225,564
169,080
248,453 26.02.13
202,214 25.02.14
261,389 17.04.15
– 20.03.16
568,664
712,056
The weighted average share price at the date of exercise for the awards that vested during the year was 904.6p (2012 – nil).
The fair value of the PSP awards and options granted in 2013 was calculated using the Stochastic pricing model (also known as the
“Monte Carlo” model), which incorporates the effect of the TSR performance condition.
The assumptions used in the model were as follows:
Weighted average share price at grant
Exercise price
Expected volatility – Hunting PLC
Expected volatility – Comparator group (average)
Risk free rate
Expected life
Fair value
2013
2012
901.0p
0p
34.8%
42.8%
0.3%
3 years
566.60p
906.0p
0p
35.3%
44.2%
0.5%
3 years
604.97p
The expected volatility was calculated using historic weekly volatility over three years prior to grant, equal in length to the performance
period at the date of grant. The expected volatilities of each constituent of the comparator group are calculated on the same basis and
input into the model individually and the average of these figures is shown in the table above.
The expected life of the award has been calculated as three years, commensurate with the vesting period. The risk free rate is based on
the UK gilt rate commensurate with the vesting period prevailing at the date of grant.
Hunting PLC 2013 Annual Report and Accounts 139
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
37. Share-based Payments continued
Participants are entitled to a dividend equivalent over the number of shares that make up their award. It is accumulated over the vesting
period and released subject to the achievement of the performance condition. This is factored into the fair value calculation and as a
result the dividend yield assumption is set to zero.
The initial accounting charge of the PSP incorporates an estimate of the number of shares that are expected to lapse for those participants
who cease employment during the vesting period. The estimate of the expected forfeiture rate is 2.5% per annum. The subsequent
accounting charge for 2013 includes an adjustment to the initial accounting charge to allow for actual lapses rather than estimated lapses.
The charge to the income statement attributable to the PSP is $0.8m (2012 – $1.7m), which is recognised in operating expenses.
(c) Restricted Share Plan (“RSP”)
The Company continues to operate and grant share awards and options under its restricted share plan. Under the RSP, annual conditional
awards of shares and options may be made to employees subject to continued employment during the vesting period. There are no
performance conditions attached to these awards and options. The RSP are granted at nil cost.
Details of the RSP awards and options movements during the year are set out below:
Outstanding at beginning of the year
Granted during the year
Vested during the year
Lapsed during the year
Outstanding at the end of the year
Number
of awards
2013
Number
of awards
2012
603,701
418,923
(177,812)
(97,646)
618,570
272,023
(208,137)
(78,755)
747,166
603,701
The weighted average share price at the date of exercise, for awards that vested during the year, was 906.0p (2012 – 951.0p).
Details of RSP awards and options outstanding at 31 December 2013 are as follows:
Date of grant
26 February 2010
25 February 2011
17 April 2012
20 March 2013
Outstanding at the end of the year
Number
of awards
2013
Number
of awards
2012
Normal
vesting
date
–
154,686
219,572
372,908
171,470 26.02.13
179,787 25.02.14
252,444 17.04.15
– 20.03.16
747,166
603,701
The fair value of the RSP award granted in 2013 was calculated using the Black-Scholes pricing model. The assumptions used in the
model were as follows:
Weighted average share price at grant
Exercise price
Expected dividend yield
Expected volatility
Risk free rate
Expected life
Fair value
2013
2012
901.0p
0p
0%
34.8%
0.3%
3 years
901.0p
906.0p
0p
0%
35.3%
0.5%
3 years
906.0p
The expected volatility was calculated using historic weekly volatility over three years to grant, equal in length to the remaining portion of
the performance period at the date of grant.
The expected life of the award has been calculated as three years, commensurate with the vesting period. The risk free rate is based on
the UK gilt rate commensurate with the vesting period prevailing at the date of grant.
140 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 37. Share-based Payments continued
Participants are entitled to a dividend equivalent over the number of shares which make up their award. It is accumulated over the
vesting period and released subject to the employee remaining in employment. This is factored into the fair value calculation and as a
result the dividend yield assumption is set to zero.
The initial accounting charge of the RSP incorporates an estimate of the number of shares that are expected to lapse for those participants
who cease employment during the vesting period. The estimate of the expected forfeiture rate is 2.5% per annum. The subsequent
accounting charge for 2013 includes an adjustment to the initial accounting charge to allow for actual lapses rather than estimated lapses.
The charge to the income statement attributable to the RSP is $2.6m (2012 – $2.3m), which is recognised in operating expenses.
(d) Long-Term Incentive Plan
The Group operates a Long-Term Incentive Plan (“LTIP”) for key executives. LTIP awards may be settled in shares or cash. Details of
awards made under this plan are contained within the Remuneration Committee Report on page 65.
The fair value charge to the income statement attributable to the LTIP is $6.6m (2012 – $7.1m) and the liability in relation to the LTIP at the
year end is $13.5m (2012 – $13.3m).
38. Operating Leases
The Group as Lessee
Operating lease payments mainly represent rentals payable by the Group for properties:
Operating lease payments recognised in income statement:
Lease and rental payments*
*
Included in the charge for the year is $nil (2012 – $0.9m) for discontinued operations.
Property
$m
2013
Others
$m
Total
$m
Property
$m
2012
Others
$m
Total
$m
13.1
2.0
15.1
10.7
1.1
11.8
Total future aggregate minimum lease payments under non-cancellable operating leases expiring:
Within one year
Between two and five years
After five years
Total lease payments
Property
$m
13.9
36.6
21.1
71.6
2013
Others
$m
0.9
1.3
–
2.2
Total
$m
Property
$m
14.8
37.9
21.1
73.8
13.0
32.7
11.7
57.4
2012
Others
$m
0.9
1.5
–
2.4
Total
$m
13.9
34.2
11.7
59.8
The Group as Lessor
Property rental earned during the year was $1.4m (2012 – $2.5m), of which $nil (2012 – $1.3m) relates to discontinued operations.
A number of the Group’s leasehold properties are sublet under existing lease agreements.
Total future minimum sublease income receivable under non-cancellable operating leases expiring:
Within one year
Between two and five years
After five years
Total lease income receivable
2013
Property
$m
2012
Property
$m
1.0
3.1
3.0
7.1
1.1
0.6
–
1.7
Hunting PLC 2013 Annual Report and Accounts 141
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
39. Exploration and Evaluation Activities
The assets, liabilities, income, expense and cash flows arising on the Group’s exploration for and evaluation of oil and gas resources are
as follows:
The Group had $1.0m assets (2012 – $1.4m) and $2.9m liabilities (2012 – $3.5m) relating to the exploration for and evaluation of oil and
gas reserves.
During the year income earned on exploration and evaluation activities was $nil (2012 – $nil), expenses incurred for the year were $2.6m
(2012 – $3.2m) and finance costs incurred of $0.3m (2012 – $nil), with tax relief of $1.0m (2012 – $1.1m). Expenses comprise $2.6m
(2012 – $3.2m) for dry hole costs.
Cash inflows from operating activities were $0.8m (2012 – $3.2m outflows), cash outflows from investing activities were $2.6m (2012
– $nil) and cash inflows from financing activities were $1.8m (2012 – $nil).
The Group is committed to $nil (2012 – $3.1m) for expected drilling costs, but these have not been provided for in the financial
statements.
40. Related Party Transactions
Group
The following related party transactions took place between wholly owned subsidiaries of the Group and associates during the year:
Transactions:
Sales of goods and services
Purchase of goods and services
Royalties receivable
Dividends received from associates
Movement on loans to and from associates:
Loans from associates repaid
Loans to associates
Loans to associates repaid
Year-end balances:
Receivables from associates
Payables to associates
2013
$m
0.1
–
0.4
1.2
(0.1)
–
0.4
0.6
(0.1)
2012
$m
3.9
(0.2)
0.9
0.3
(1.4)
(0.2)
0.5
0.9
(0.2)
The outstanding balances at the year end are unsecured and have no fixed date for repayment. No expense has been recognised in the
period for bad or doubtful debts in respect of amounts owed by associates.
All interests in associates are in the equity shares of those companies.
The key management of the Company comprises the executive and non-executive Directors only. The details of the Directors’
compensation are disclosed in note 10. The Directors of the Company had no material transactions other than as a result of their service
agreements.
142 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 40. Related Party Transactions continued
Company
The following related party transactions took place between the Company and wholly owned subsidiaries of the Group during the year:
Transactions:
Royalties receivable
Management fees payable
Recharges of share options and awards and administrative expenses
Loans received from subsidiaries
Loan from subsidiary repaid
Loan to subsidiary
Loan to subsidiary repaid
Interest payable on inter-company loans
Interest receivable on inter-company loans
Dividends received from subsidiaries
Year-end balances:
Payables to subsidiaries
Receivables from subsidiaries
Loans owed to subsidiaries
Loans owed by subsidiaries
2013
$m
2012
$m
17.7
(5.1)
11.0
39.5
(35.5)
(15.5)
15.5
(1.3)
0.2
46.1
(5.5)
28.0
(92.2)
15.5
17.7
(1.0)
15.7
–
(26.0)
–
26.0
(1.3)
0.3
26.5
(1.0)
31.3
(89.6)
16.6
All balances between the Company and its subsidiaries have no fixed term for repayment and are unsecured.
The Company also serves as the Group’s intermediary for the provision of UK group tax relief, VAT and certain group insurances. At the
year end, the outstanding receivable for group tax was $4.0m (2012 – $11.1m).
41. Acquisitions
XL Perforating Partnership
On 29 May 2013, the Group acquired the trade and assets of XL Perforating Partnership (“XLPP”), for a consideration of $8.7m. XLPP is a
Canadian based manufacturer and distributor of perforating gun systems, tubing conveyed systems, instrument hardware and explosive
devices to the oil and gas industry. This business has been classified as part of the Well Completion segment.
Details of the acquired net assets, goodwill and consideration are set out below:
Property, plant and equipment
Other intangible assets
Inventories
Net assets acquired
Goodwill
Consideration
Provisional
fair values
$m
1.7
0.3
5.4
7.4
1.3
8.7
Consideration comprised $8.7m cash paid on 29 May 2013.
Goodwill on the acquisition represents the value of the assembled workforce at the time of acquisition and the future economic benefits
that are expected to accrue from opportunities to supply a complete perforating system in the Canadian market as well as other products
and services from Hunting’s portfolio. The provisional amount of goodwill that is expected to be deductible for tax purposes is $1.0m.
The fair values of the net assets acquired are provisional as work is continuing in respect of the fair value exercise.
Acquisition-related costs of $0.7m have been included in operating expenses in the income statement.
Hunting PLC 2013 Annual Report and Accounts 143
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
41. Acquisitions continued
XLPP has contributed revenue of $10.3m, profit from operations of $1.1m, profit before tax of $1.1m and profit for the period of $0.8m to
the Group’s performance from the date of acquisition to 31 December 2013. If XLPP had been acquired on 1 January 2013, the Group’s
revenue would have been $1,340.1m, profit from operations $137.4m, profit before tax $135.0m and profit for the year $106.2m.
Hunting Specialty Supply LLP
On 12 March 2013, a payment of $2.0m was made to the sellers of Specialty in respect of the contingent consideration arrangement.
42. Principal Subsidiaries
The Directors consider that the number of undertakings in respect of which the Company is required to disclose under Section 409 of
the Companies Act 2006 would result in information of excessive length being given in the notes to the Company’s annual accounts. In
accordance with Section 410(2) of the Companies Act 2006, the information below relates to those Group undertakings at the financial
year end whose results of financial position, in the opinion of the Directors, principally affect the figures of the consolidated financial
statements of Hunting PLC. Details of all the subsidiary undertakings will be annexed to the next Annual Return of Hunting PLC to be
filed at Companies House.
All Companies listed below are wholly owned by the Group, except where otherwise indicated.
Subsidiaries and associates
Country of incorporation and/or operations
Business
Canada
Canada
China
England and Scotland
Indonesia
Scotland
Scotland and Netherlands
Oil and gas activities
Oilfield services
Hunting Energy Services (Canada) Ltd
Drilling equipment
Hunting Energy Services (Drilling Tools) Ltd
Oilfield services
Hunting Energy Services (Wuxi) Co. Ltd (70%)
Oilfield services
Hunting Energy Services (International) Limited
Oilfield services
PT Hunting Energy Asia
Oilfield services
Hunting Energy Services Limited
Hunting Energy Services (UK) Limited (60%)
Oilfield services
Hunting Energy Services (Well Intervention) Limited Scotland, USA, Singapore and UAE Oilfield services
Oilfield services
Hunting Welltonic Limited
Oilfield services
Hunting Energy Services (International) Pte. Ltd.
Oilfield services
Hunting Energy Services Pte. Ltd.
Oilfield services
Hunting Energy Services (China) Pte. Ltd. (70%)
Oilfield services
National Coupling Company, Inc.
Oilfield services – precision engineering
Hunting Dearborn, Inc.
Drilling equipment
Hunting Energy Services (Drilling Tools), Inc.
Oilfield services electronic component
Hunting Innova, Inc.
manufacturer
Oilfield services
Oilfield services – perforating systems
Scotland
Singapore
Singapore
Singapore
USA
USA
USA
USA
Hunting Specialty Supply, L.P.
Hunting Titan, Inc.
USA
USA
Other activities
E.A. Gibson Shipbrokers Limited
Tenkay Resources, Inc.
England, Hong Kong and Singapore
USA
Shipbroking, LPG broking
Oil and natural gas exploration
and production
Corporate activities
Hunting Energy Holdings Limited*
Hunting Knightsbridge Holdings Limited*
Hunting Knightsbridge (US) Finance Limited
Huntaven Properties Limited
Hunting U.S. Holdings, Inc.
Hunting Energy Corporation
England
England
England
England
USA
USA
Holding company
Finance
Finance
Group properties
Holding company
Holding company
Notes
1 Except where otherwise stated companies are wholly owned, being incorporated and operating in the countries indicated.
2
3 All interests in subsidiaries and associates are in the equity shares of those companies.
Interests in companies marked * are held directly by Hunting PLC.
144 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 43. Principal Accounting Policies
The Group’s principal accounting policies are described below.
(1) Consolidation
• The Group accounts include the results of the Company and its subsidiaries, together with its share of associates.
• Uniform accounting policies have been adopted across the Group.
(2) Subsidiaries
• Subsidiaries are entities over which the Group has the power to govern the financial and operating policies irrespective of the
percentage of voting rights owned.
• Subsidiaries are consolidated from the date on which control is transferred to the Group and are de-consolidated from the date control
ceases.
• The Group uses the acquisition method of accounting for business combinations. Consequently the consideration is determined as the
fair value of the net assets transferred to the vendor and includes an estimate of any contingent consideration. The net assets acquired
are also measured at their respective fair values for initial recognition purposes on the acquisition date.
• Acquisition-related costs are expensed to the income statement as incurred.
(3) Discontinued Operations
• A discontinued operation is a component of the Group that has either been disposed of or that is classified as held-for-sale, which
represents a separate major line of business or geographical area of operations and is part of a single coordinated plan to dispose of a
separate major line of business or geographical area of operations.
• Discontinued operations are presented separately in the income statement and are shown net of tax.
(4) Revenue
• Revenue is measured as the fair value of the consideration received or receivable for the provision of goods or services in the ordinary
course of business, taking into account trade discounts and volume rebates, and is stated net of sales taxes.
• Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the
customer, which is normally on delivery of the products. Products include manufactured goods and OCTG supplies, including
tubulars acquired by Hunting as plain-end pipe on which lathing work has been applied and which is re-sold as threaded pipe.
• Revenue from the sale of services is recognised when the services are rendered. The Group’s service activities principally comprise lathing
work on customer-owned plain-end pipe in order to apply a thread to each pipe end and commissions earned from shipbroking.
• Revenue from the rental of plant and equipment is recognised as the income is earned.
(5) Amortisation and Exceptional Items
Exceptional items are items of income or expense which the Directors believe should be separately disclosed by virtue of their significant
size or nature to enable a better understanding of the Group’s financial performance. The group discloses such items in the “middle
column” of the income statement. In applying this policy, the following items are treated as exceptional:
• Acquisitions can give rise to a number of exceptional items. These would include acquisition costs written-off, and bonus
arrangements which management view as a one-off arrangement. To the extent that acquisitions include contingent consideration,
adjustments subsequent to the initial recognition of fair value, which are reflected in the income statement, are treated as exceptional.
The unwinding of fair value uplifts to inventories recognised at acquisition are treated as exceptional such that gross profit can be
shown based on the original cost of production or purchase as would be the case for normal trading transactions in existing
companies and to avoid artificial profit increases in post-acquisition periods as the unwind diminishes.
• A gain or loss on the disposal of a business and any expense or income arising from indemnities in disposal agreements would be
treated as exceptional.
• Property, plant and equipment held by the exploration and production division are subject to impairment or reversals of impairment
based on value in use of or fair value less cost to sell calculations. This can lead to volatility and, furthermore, given the Board’s
decision to curtail future investment in this division except as contractually committed, such amounts are treated as exceptional. For
this reason, dry hole costs are also treated as exceptional.
• Litigation settlements and associated legal costs.
• The tax effect of any transaction considered to be exceptional is also treated as exceptional.
Hunting PLC 2013 Annual Report and Accounts 145
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
43. Principal Accounting Policies continued
Details of items treated as exceptional in the year and relevant comparative information is detailed in note 7.
Amortisation expenses for acquired intangible assets are also shown in the “middle column” due to the significance of these amounts and
to clearly identify the effect on profits, which will arise as current balances become fully written-off, or as new acquisitions give rise to
new expenses.
(6) Interest
• Interest income and expense is recognised in the income statement using the effective interest method.
(7) Foreign Currencies
(a) Individual Subsidiaries’ and Associates’ Accounts
• The financial statements for each of the Group’s subsidiaries and associates are prepared using their functional currency.
• The functional currency is the currency of the primary economic environment in which the entity operates.
• Transactions denoted in currencies other than the functional currency are translated into the functional currency at the exchange rate
ruling at the date of the transaction.
• Monetary assets and liabilities, except borrowings designated as a hedging instrument in a net investment hedge, denoted in non-
functional currencies are retranslated at the exchange rate ruling at the balance sheet date and exchange differences are taken to the
income statement.
• Borrowings designated as a hedging instrument in a net investment hedge are retranslated at the exchange rate ruling at the balance
sheet date and exchange differences are taken direct to equity.
(b) Group Consolidated Accounts
• The presentation currency of the Group is US dollars.
• The net assets of non-US dollar denominated subsidiaries and associates are translated into US dollars at the exchange rates ruling at
the balance sheet date.
• The income statements of subsidiaries and associates are translated into US dollars at the average rates of exchange for the year.
• Exchange differences are recognised directly in equity in the currency translation reserve (“CTR”), together with exchange differences
arising on foreign currency loans used to finance foreign currency net investments.
• Upon adoption of IFRS on 1 January 2004, accumulated exchange differences arising on consolidation prior to 31 December 2003
were reset to zero and the CTR recommenced under IFRS on 1 January 2004.
• The balance on the CTR represents the exchange differences arising on the retranslation of non-US dollar amounts into US dollars
since 1 January 2004.
• On the disposal of a business, the cumulative exchange differences previously recognised in the foreign currency translation reserve
relating to that business are transferred to the income statement as part of the gain or loss on disposal.
(8) Taxation
• The taxation charge in the income statement comprises current tax and deferred tax arising on the current year’s profit before tax and
adjustments to tax arising on prior years’ profits.
• Current tax is the expected tax payable arising in the current year on the current year’s profit before tax, using tax rates enacted or
substantively enacted at the balance sheet date, plus adjustments to tax payable in respect of prior years’ profits.
• Deferred tax is the expected tax payable on the current year’s profit before tax arising in a future year, using tax rates enacted or
substantively enacted at the balance sheet date that are expected to apply when the related deferred tax asset is realised or the
deferred tax liability is settled.
• Full provision is made for deferred taxation, using the liability method, on all taxable temporary differences. Deferred tax assets and
liabilities are recognised separately on the balance sheet and are reported as non-current assets in line with IAS 1.
• Deferred tax assets are recognised only to the extent that they are expected to be recoverable. Deferred taxation on unremitted
overseas earnings is provided for to the extent a tax charge is foreseeable.
• When items of income and expense are recognised in other comprehensive income, the current and deferred tax relating to those
items is also recognised in other comprehensive income.
(9) Segmental Reporting
• Financial information on operating segments that corresponds with information regularly reviewed by the Chief Operating Decision
Maker is disclosed in the accounts.
• Operating segments are components of the Group that are engaged in providing related products.
• Geographical information is based on the location of where the sale originated and where the non-current assets are located.
146 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 43. Principal Accounting Policies continued
(10) Property, Plant and Equipment and Depreciation
(a) General
• Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. Cost includes
expenditure that is directly attributable to the acquisition and installation of the asset.
• Land, pre-production oil and gas exploration costs and assets under construction are not depreciated.
• With the exception of drilling tools, which are depreciated using the units of production method, and oil and gas exploration and
production equipment (see 10(b) below), assets are depreciated using the straight-line method at the following rates:
Freehold buildings – 2% to 10%
Leasehold buildings – life of lease
Plant, machinery and motor vehicles – 6% to 331⁄3%
• The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
(b) Exploration Expenditure
• Oil and gas exploration and appraisal costs are initially capitalised pending determination of the existence of commercial reserves and
are included in the asset category oil and gas exploration and development.
• Upon determination that commercially viable quantities of hydrocarbons are not found, the costs are charged immediately to the
income statement.
• Depreciation of oil and gas expenditure commences when production commences. The costs are depreciated using the unit of
production method.
(11) Goodwill
• Goodwill arises when the fair value of the consideration paid for a business exceeds the fair value of the Group’s share of the net
assets acquired.
• Goodwill is recognised as an asset and is carried at cost less accumulated impairment losses.
• Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to the cash-generating
units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
• On the disposal of a business, goodwill relating to that business that remains on the balance sheet at the date of disposal is included in
the determination of the profit or loss on disposal.
(12) Other Intangible Assets
• Other intangible assets are stated at cost less accumulated amortisation and impairment losses where applicable.
• These assets have a finite life and are amortised in accordance with the pattern of expected future economic benefits, or when this
cannot be reliably estimated, by using the straight-line method.
• Intangible assets are amortised over the following periods:
Customer relationships – eight to ten years
Patents – ten to twelve years
Unpatented technology – ten years
Trademarks and domain names – one to five years
(13) Impairments
• The Group performs goodwill impairment reviews at least annually.
• The Group also assesses at least annually whether there have been any events or changes in circumstances that indicate that property,
plant and equipment and intangible assets other than goodwill may be impaired. An impairment review is carried out whenever the
assessment indicates that the carrying amount may not be fully recoverable.
• For the purposes of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
• Where impairment exists, the asset is written down to the higher of (a) its fair value minus costs to sell; and (b) its value in use.
Impairments are recognised immediately in the income statement.
• An impairment to goodwill is never reversed. When applicable, an impairment of any other asset is reversed, but only to the extent that
the consequent carrying value does not exceed what would have been the carrying value had the impairment not originally been made.
(14) Inventories
• Inventories are stated at the lower of cost and net realisable value.
• Cost is determined using the first-in-first-out method and net realisable value is the estimated selling price less costs of disposal in the
ordinary course of business. The cost of inventories includes direct costs plus production overheads.
Hunting PLC 2013 Annual Report and Accounts 147
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Notes to the Financial Statements continued
43. Principal Accounting Policies continued
(15) Cash and Cash Equivalents
• Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with a maturity of less than three months from
the date of deposit that are readily convertible to a known amount of cash.
• For cash flow statement purposes, cash and cash equivalents include bank overdrafts and short-term deposits with a maturity of less
than three months from the date of deposit. In the balance sheet, bank overdrafts are shown within borrowings in current liabilities.
(16) Loans and Receivables
• Loans and receivables are initially recognised at fair value at the trade date which is normally the consideration paid plus transaction costs.
• Loans and receivables are carried at amortised cost using the effective interest method. If collection is expected in one year or less
they are classified as current assets, otherwise they are presented as non-current assets.
• The Group assesses at each balance sheet date whether a loan or receivable is impaired and if necessary the carrying amount is
reduced to the appropriate value. The loss is recognised immediately in the income statement.
• Loans and receivables cease to be recognised when the right to receive cash flows has expired or the Group has transferred
substantially all the risks and rewards of ownership.
(17) Financial Liabilities
• Financial liabilities are initially recognised at fair value at the trade date which is normally the consideration received less, in the case
of financial liabilities that are not measured at fair value through profit or loss, transaction costs. The Group subsequently remeasures
all of its non-derivative financial liabilities, including trade payables, at amortised cost.
• Payables are classified as current liabilities if payment is due within one year, otherwise they are presented as non-current liabilities.
(18) Provisions
• Provisions are liabilities for which the amount or timing of future expenditure is uncertain.
• Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow of
resources will be required to settle the obligation.
• Whenever the time value of money is material, provisions are discounted to their present value.
(19) Post-employment Benefits
(a) Defined Contribution Retirement Schemes
• Payments to defined contribution retirement schemes are charged to the income statement when they fall due.
(b) Defined Benefit Retirement Schemes
• Payments to defined benefit retirement schemes are recognised as increments to the assets of the schemes.
• The amount charged to the income statement with respect to these schemes, within profit from operations, is the increase in the
retirement benefit obligation resulting from the additional service provided by the participating employees during the current year,
which is measured using the Projected Unit method.
• Net interest arising on the net assets of the scheme is also recognised in the income statement within net finance costs.
• Remeasurement gains and losses are recognised fully and immediately in the statement of comprehensive income.
• The assets of the UK scheme which are invested in insurance policies have been valued using the same methodology and
assumptions used to calculate the defined benefit obligation so that, where the assets match the liabilities, the value of the assets is
equal to the value of the corresponding obligation.
148 Hunting PLC 2013 Annual Report and Accounts
Financial Statements 43. Principal Accounting Policies continued
(20) Share-based Payments
• The Group issues share-based payments (LTIP awards), which can be settled in either cash or equity, to certain employees as
consideration for services received from the employees. A liability is recognised equal to the current fair value of the services
received, determined at each balance sheet date. The fair value of the liability is remeasured at each subsequent reporting date and at
the date of settlement, with any changes in fair value recognised in the income statement.
• The Group also issues equity-settled share-based payments (PSP and RSP awards) to certain employees as consideration for services
received from the employees. The fair value of the employees’ services is recognised as an expense in the income statement on a
straight-line basis over the vesting period based on the Group’s estimate of awards that will ultimately vest.
• The fair value of employees’ services is determined by an external valuer, using the Monte Carlo model for PSP awards and the
Black-Scholes model for the RSP awards, with reference to the grant date fair value of the options granted. The fair value includes
market performance conditions in respect of the performance based awards and excludes the impact of any service and non-market
performance vesting conditions.
• No adjustment is made to the fair value after the vesting date.
(21) Share Capital
• The Company’s share capital comprises a single class of Ordinary shares, which are classified as equity.
• Incremental costs directly attributable to the issue of new shares are charged to equity as a deduction from the proceeds, net of tax.
(22) Dividend Distributions
• Dividend distributions to the Company’s shareholders are recognised as liabilities in the Group’s financial statements in the period in
which the dividends are approved by the Company’s shareholders and are dealt with in the statement of changes in equity.
Hunting PLC 2013 Annual Report and Accounts 149
Financial StatementsStrategic ReportCorporate GovernanceFinancial StatementsOther Information Financial Statements
Financial Record*
(Unaudited)
Revenue
EBITDA
Depreciation and non-exceptional impairment
Profit from continuing operations
Finance (charges) income
Share of associates’ post-tax profits
Profit before taxation from continuing operations
Taxation
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Basic earnings per share:
Continuing operations
Continuing and discontinued operations
Diluted earnings per share:
Continuing operations
Continuing and discontinued operations
Dividend per share#
Total assets
Non-current assets
Net current assets
Financed by:
Shareholders’ funds (including non-controlling interests)
Non-current liabilities
2013
$m
2012
$m
1,334.0
1,309.0
242.8
(44.3)
198.5
(2.8)
0.4
196.1
(52.1)
144.0
–
144.0
242.9
(40.4)
202.5
(8.7)
1.5
195.3
(54.7)
140.6
–
140.6
Restated
2011
$m
975.1
162.5
(34.4)
128.1
(2.4)
1.7
127.4
(35.7)
91.7
1.1
92.8
2010
$m
2009
$m
656.0
486.4
95.7
(27.3)
68.4
2.4
1.6
72.4
(21.7)
50.7
9.1
59.8
66.4
(21.6)
44.8
4.0
1.5
50.3
(15.3)
35.0
9.3
44.3
95.8c
95.8c
93.0c
93.0c
63.1c
63.9c
35.6c
42.6c
23.1c
30.2c
93.5c
93.5c
90.8c
90.8c
61.8c
62.6c
34.9c
41.7c
22.6c
29.6c
29.5c
28.4c
23.9c
19.5c
16.4c
1,249.1
483.0
1,254.9
464.4
1,234.1
357.9
566.9
448.5
1,732.1
1,719.3
1,592.0
1,015.4
1,414.8
317.3
1,332.7
386.6
1,146.9
445.1
942.6
72.8
1,732.1
1,719.3
1,592.0
1,015.4
396.8
583.8
980.6
914.9
65.7
980.6
Net assets per share
957.9c
906.6c
783.9c
711.4c
692.1c
*
#
Information is stated before exceptional items and amortisation of intangible assets.
Dividend per share is stated on a declared basis. Interim dividends per share have been converted from pence per share into cents per share using the exchange rate on the date they
were paid and final dividends have been converted into cents per share using the exchange rate on the date they were approved.
150 Hunting PLC 2013 Annual Report and Accounts
Other Information
Shareholder Information
(Unaudited)
Financial Calendar 2014
16 April
27 May
August
November
Annual General Meeting
Final Ordinary Dividend Payment
Announcement of Interim Results
Interim Ordinary Dividend Payment
In common with many public companies in the UK, the Company no longer publishes a printed version of its half year report. The half
year report is only available online from the Company’s website at www.huntingplc.com.
Analysis of Ordinary shareholders
At 31 December 2013, the Company had 2,037 Ordinary shareholders (2012 – 2,105) who held 147.7 million (2012 – 147.0 million)
Ordinary shares analysed as follows:
Size of holdings
1–4,000
4,001–20,000
20,001–40,000
40,001–200,000
200,001–500,000
500,001 and over
2013
2012
% of total
shareholders
% of total
shares
% of total
shareholders
% of total
shares
72.4
12.6
3.4
5.8
2.9
2.9
1.0
1.6
1.3
7.8
12.9
75.4
72.5
13.0
3.1
6.1
2.4
2.9
1.0
1.7
1.3
8.2
10.9
76.9
Share Information
The Ordinary shares of the Company are quoted on the London Stock Exchange.
The Company’s registrars, Equiniti, offer a range of shareholder information and dealing services on www.shareview.co.uk.
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Hunting PLC 2013 Annual Report and Accounts 151
Other Information
Glossary
AGM
AMG
API
Average gross capital
employed*
Basic EPS
bbl
boe
Board
Annual General Meeting.
Advanced Manufacturing Group – combines the precision engineering and manufacturing
capabilities in the Well Construction segment for the Electronics division (Hunting Innova), Hunting
Dearborn and Hunting Doffing product lines. Hunting is aiming to become a leading single source of
MWD/LWD tools.
American Petroleum Institute.
The monthly average of the aggregate of capital employed.
Basic earnings per share is calculated by dividing the earnings from continuing operations
attributable to Ordinary shareholders by the weighted average number of Ordinary shares in issue
during the year.
Barrel of oil – one barrel of oil equals 159 litres or 42 US gallons.
Barrels of oil equivalent.
The Board of Directors of the Company.
Capital employed*
The amount of capital available to the Group to invest in its business and comprises the total equity
plus net debt.
Capital expenditure – “Capex”
Cash spend on tangible non-current assets.
Can
C$ or Can$
CGU
CO2
CO2
CODM
e
Company
CPI
DPS*
Diluted EPS
Dividend cover*
Downhole
DTR
EBITDA
EPS
ESOP
EU
Free cash flow*
FSA
FTSE
FY
GAAP
Gearing*
Canada.
Canadian dollar.
Cash-generating unit.
Carbon dioxide.
Carbon dioxide equivalent.
Chief operating decision maker.
Hunting PLC.
Consumer Price Index.
Dividend per share – the amount in pence returned to Ordinary shareholders. Figures shown are
calculated on an accruals basis.
Diluted earnings per share – earnings from continuing operations before amortisation and
exceptional items, attributable to Ordinary shareholders, divided by the weighted average number of
Ordinary shares in issue during the year, as adjusted for all potentially dilutive Ordinary shares.
An indication of the Company’s ability to maintain the level of its dividend and is calculated as
earnings from continuing operations attributable to Ordinary shareholders divided by the cash
dividend to be returned to Ordinary shareholders, on an accruals basis.
Downhole refers to something that is located within the wellbore.
Disclosure and Transparency Rules.
EBITDA is a non-GAAP measure and is defined as pre-exceptional earnings before share of
associates’ post-tax profits, interest, tax, depreciation, impairment and amortisation.
Earnings per share.
Executive Share Option Plan.
European Union.
Free cash flow is a non-GAAP measure and is defined as profit from continuing operations adjusted
for working capital, tax, replacement capital expenditure and interest.
Financial Services Authority.
Financial Times Stock Exchange.
The twelve months ending 31 December of a given year.
Generally Accepted Accounting Practice.
Net debt as a percentage of total equity.
152 Hunting PLC 2013 Annual Report and Accounts
Other Information
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GHG
GoM
Group
Greenhouse gas.
Gulf of Mexico.
The Company and its subsidiaries.
Growth capital expenditure
Capital expenditure to grow the business from current operating levels and enhance operating
activity.
H1
H2
HEMS
HMRC
HS&E
Hunting
IAS
IFRIC
IFRS
The six months ended 30 June of a given financial year.
The six months ended 31 December of a given financial year.
Hunting Equipment Management Services – provide downhole tool rental equipment in the Well
Construction segment.
HM Revenue and Customs.
Health, safety and environment.
The Company and its subsidiaries.
International Accounting Standards.
International Financial Reporting Interpretations Committee interpretation.
International Financial Reporting Standards.
Inventory and WIP days*
Inventory and WIP at the year end divided by revenue per day, adjusted for the impact of
acquisitions.
ISO
KPI
LEAN or Lean
LHS
LIBOR
LLP
LNG
LPG
LTIP
m
m3
mcf
MENA
mmBtu
MWD/LWD
MWh
NEB
Net debt*
OCI
OCTG
p
PLC
PSP
R&D
RCF
International Standards Organisation.
Key performance indicator.
A production practice that eliminates wasteful processes, thereby reducing production time and
costs, and improving efficiency.
Left hand side.
London Inter-bank Offered Rate.
Limited Liability Partnership.
Liquefied Natural Gas.
Liquefied Petroleum Gas.
Long-Term Incentive Plan.
Million.
Cubic metre.
1,000 cubic feet.
Middle East and North Africa region.
Million British Thermal Units.
Measurement-while-drilling/Logging-while-drilling.
Megawatt hours.
Net equivalent barrels of oil.
Net debt comprises bank overdrafts, current and non-current borrowings and finance leases less
cash and cash equivalents and investments.
Other comprehensive income.
Oil Country Tubular Goods – pipe and tubular goods and products used in the oil and gas industry,
such as drill pipe, pipe casings and production pipes.
UK pence.
Public Limited Company.
Performance Share Plan.
Research and Development.
Revolving Credit Facility.
Hunting PLC 2013 Annual Report and Accounts 153
Other Information
Glossary continued
Replacement capital
expenditure
Capital expenditure necessary to maintain existing levels of operating activity.
Reported
RHS
ROCE*
RPI
RSP
Scope 1
Scope 2
£
Trade payable days*
Trade receivable days*
TSR*
TSR %*
TWh
UAE
Underlying
US or USA
US$ or $
UK
VAT
Wellbore
Well completion
Well construction
Well intervention
WIP
Working capital*
Results for the year as reported under IFRS.
Right hand side.
Return on average capital employed – measures profit before interest and tax before amortisation
and exceptional items, as a percentage of average gross capital employed.
Retail Price Index.
Restricted Share Plan.
Scope 1 emissions are direct GHG emissions from sources that are owned or controlled by the
entity. Scope 1 emissions include fossil fuels burned on site, emissions from vehicles and other direct
sources.
Scope 2 emissions are indirect GHG emissions resulting from the generation of electricity, heating
and cooling or steam generated off site but purchased by the entity.
Sterling.
The average number of days’ credit taken by the Group, calculated as trade payables at the year end
divided by cost of sales per day, adjusted for the impact of acquisitions.
The average number of days’ credit given to the Group’s customers, calculated as trade receivables
at the year end divided by revenue per day, adjusted for the impact of acquisitions.
Total Shareholder Return – the net share price change plus the dividends paid during that period.
Total Shareholder Return % = Share price end of period – Share price start of period + Dividends
paid ÷ Share price start of period.
Terawatt hours.
The Federation of the United Arab Emirates.
Results for the year, as reported under IFRS, adjusted for amortisation and exceptional items, which
is the basis used by the Directors in assessing performance.
United States of America.
United States dollar.
United Kingdom.
Value Added Tax.
The wellbore refers to the drilled hole.
Well completion refers to the processes of preparing a well for production. This involves the
assembly of downhole tubulars and equipment required to enable safe and efficient production from
an oil or gas well.
Well construction refers to the initial drilling and processes of constructing the wellbore in an oil and
gas well. These processes typically include drilling and logging the hole; running, cementing and
logging the casing; hydraulic fracturing or stimulating the well and monitoring well performance and
integrity.
Well intervention refers to any operation carried out on an oil or gas well that maintains or enhances
the production of the well or provides well diagnostics.
Work in progress.
Trade and other receivables, excluding receivables from associates, derivative financial assets,
environmental escrow and promissory notes, plus inventories less trade and other payables,
excluding payables due to associates, derivative financial liabilities, dividend liabilities and retirement
plan obligations.
WTI
West Texas Intermediate – the price per barrel of Texas light sweet crude oil.
* Non-GAAP measure.
154 Hunting PLC 2013 Annual Report and Accounts
Notes
Other Information
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Hunting PLC 2013 Annual Report and Accounts 155
Other Information
Notes
156 Hunting PLC 2013 Annual Report and Accounts
Professional Advisers
Solicitors
CMS Cameron McKenna LLP
Auditors
PricewaterhouseCoopers LLP
Joint Corporate Brokers
Deutsche Bank and Barclays Bank
Financial Advisers
DC Advisory Partners Limited
Insurance Brokers
Willis Limited
Pension Advisers & Actuary
Lane Clark & Peacock LLP
Financial Public Relations
Buchanan Communications Limited
Registrars & Transfer Office
Equiniti Limited
Aspect House
Spencer Road, Lancing
West Sussex BN99 6DA
Telephone (UK): 0871 384 2173
Overseas: +44 (0)121 415 7047
Company Contact Details
Registered Office: 5 Hanover Square, London W1S 1HQ
Registered Number: 974568 (Registered in England and Wales)
Telephone: +44 (0)20 7321 0123
Facsimile: +44 (0)20 7839 2072
www.huntingplc.com
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Printed by Park Communications on paper
manufactured from Elemental Chlorine Free (ECF)
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Park Communications is certified to ISO 14001:2004
Environmental Management System and the EU Eco-Management
and Audit Scheme (EMAS)
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Hunting PLC
5 Hanover Square
London W1S 1HQ
Tel: +44 (0)20 7321 0123
Fax: +44 (0)20 7839 2072
www.huntingplc.com